EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, October 2, 1996

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[English]

The Chairman: Good morning, and welcome to the second day of hearings on transportation, trade and tourism.

Our first presenters today are from the B.C. Ferry Corporation: Julie Bardos; Peter Mills; and Kate Armstrong.

The process is fairly straightforward. There are translation devices in front of you, should you require them. We ask that you try to confine your remarks to about ten minutes so we can have an opportunity for some questioning.

Ms Bardos, would you introduce the group.

Ms Julie Bardos (Vice-President, Human Resources, British Columbia Ferry Corporation): I will, thank you, Mr. Chairman.

My name is Julie Bardos, and I'm part of a delegation that is representing the B.C. Ferry Corporation today. With me are Peter Mills, Kate Armstrong, and Carol Prest.

We will try to keep our presentation brief, Mr. Chairman. I would ask my colleague Peter Mills to open with a brief synopsis of what the B.C. Ferry Corporation is.

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Mr. Peter Mills (Treasurer, British Columbia Ferry Corporation): Thank you. This is our second appearance before this committee. We appeared in February 1995 and gave the committee a fairly comprehensive brief on who we are and what we do. Rather than repeating all of that, I will just remind you that we are a provincially owned crown corporation. We provide the public ferry services up and down the coast of British Columbia. We operate 43 vessels out of about the same number of terminals on 24 routes, carrying about 18 million passengers and 8 million vehicles a year. We are in effect the coastal highway system as it exists up and down the central and north coast, and between the mainland and Vancouver Island and the Gulf Islands between them.

I have brought along for the committee's edification copies of our annual report, which I will leave with the committee. They provide our most recent financial results and statements of our operations in the last year.

Ms Bardos: Mr. Chairman, we have distributed to you copies of a written submission we have made. However, we don't intend to review that submission in detail today. I'm sure the committee has had an opportunity to read it and may have questions concerning it.

Today we would like to touch on three major broad themes of interest to the B.C. Ferry Corporation. The first is financial and the issue of federal offloading in the area of finances. The second is the consultative framework from the federal regulator. The last is the regulatory framework. If you have questions concerning either our submission or our presentation today, we'll be happy to answer them.

We will start with the financial framework, particularly our concerns with what we characterize as federal offloading in the financial area.

Mr. Mills: The annual report of the corporation, which I've just passed around, will tell you that in the last year we raised about $380 million in revenues and lost $40 million in our operations. That is consistent with our history of ongoing losses, which so far have been funded by public borrowing. I won't dwell any more on the sustainability of that issue.

Let me turn more specifically to your question about the funding of infrastructure. We come at this from a different context from perhaps most people here, in that we are a provider of infrastructure rather than a user of it. As a provider of infrastructure, we are trying to find new and effective ways of funding that through public means and also through private-public partnerships. We are finding three issues that are relevant to Canada and the Canadian government that are making our efforts in this area more difficult.

The first is the imposition of the specified leasing property rules under the Income Tax Act from the late 1970s, which disallow public ferry operators from exempting ferries from capital cost allowance. You'll recall that there are other means of transportation - railroad cars, vehicles, as well as buildings and docks themselves - that can be claimed for exemption and capital cost allowance. Ferries cannot be. This provides a very significant block to privately owned shipyards and other engineering firms that would like to get into the business of building, financing and leasing ferries to a variety of public operators. They are unable to raise the cost-effective capital they would be able to raise otherwise to accomplish that.

Leasing of ferries is an efficient arrangement because like the airline industry, it allows the assets to be used by a number of operators in different seasons and different areas. So far we're having difficulty doing that because ferries are not exempted. We have requested of the Canadian government, and again request here today, that new ferries that are constructed and used in Canada be exempt from the specified property leasing rule.

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The second area that is of some importance is the federal agreement. We briefed the committee quite substantially on this the last time we were here. Suffice it to say that the payments under that agreement for the services we provide on behalf of Canada on the coast are now about $21 million a year. As we are acquiring new assets and building new ships to continue that service, we have to rely on the assurance that this revenue stream will still be there. Otherwise we are unable to finance the assets we're using to provide that service.

You may be aware that just this summer we brought further enhancements to our service on the north coast. We introduced a new service from Port Hardy up into the mid-coast area, providing the best service many of those communities have had in all of the years before and after the direct federal delivery of services into that region. Our ability to finance assets and deliver that service is directly tied to the contractual payments Canada makes.

The last issue I will raise is that of excise tax on fuel. The corporation pays 4¢ a litre, which represents $4 million to $5 million a year in tax payments, on the federal fuel excise tax. We are not exempt from paying that tax. There are other operators in Canada who are. We have taken issue with Revenue Canada, first with respect to the policy by which they decided to exempt some operators and not others, and second with the legal means they employed to promulgate that. Revenue Canada has listened to us, but foreshadowing a problem that Julie will talk about in terms of public consultation, they have perhaps listened more to eastern maritime and Great Lakes shipping interests. As a result, we now have a formal notice of determination against us and we'll be pursuing the issue in the Federal Court.

With that, I'd like to hand it back to Julie.

Ms Bardos: To follow on with the area of financial concerns, fee imposition, and the whole consultative framework, which is our next issue, we have grave concerns in a number of areas, as Peter has already mentioned, about the failure to consult what we regard as the entire marine industry in Canada. He cited one example. Another recent example, which also has financial implications, was the move to restructure the old coast guard responsibilities and divide them between the Department of Fisheries and Oceans and the Department of Transport.

In the process of doing that and in essence devolving responsibilities, the federal government put forward and has in fact applied a marine services fee. That was done without any consultation with the industry and occasioned a flurry of activity on the part of carriers across the country, most specifically us. This ultimately concluded in an agreement between us and the coast guard in this particular case. It could have been much more fluidly handled, in a much more reasonable fashion, if consultation had occurred prior to the devolution of responsibilities and the unilateral imposition of a marine services fee.

Continuing with the issue of the consultative framework, we have some very specific difficulties. As I mentioned, the framework for regulation has changed. We now interface with both the coast guard and Department of Transport officials in accordance with the new set-up the federal government has created. Our direct interface is with regional representatives in an office primarily in Vancouver. We find them very cooperative. They will listen to us and attempt to resolve issues we bring to their attention, but overall they seem to be out of the departmental loop.

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For example, they may give us an interpretation on a particular segment of the regulations. We will then act on that interpretation because they are representatives of the regulator, only to find out within days or weeks that the interpretation given at the regional level is not correct or is not agreed with by the national representatives in Ottawa. You can imagine that this is a very frustrating and confusing situation.

It is also very expensive. I'll just give you an instance of this, where it does cause frustration and expense within the corporation. Obviously, expense erodes our competitive capability. I'm sure I don't have to point that out to you.

Regulations have recently been proposed that would require our licensed personnel - that is, officers who hold certificates to run our vessels or the engine rooms in our vessels - to have a continued proficiency certificate. This is just a renewal of their existing licence on a regular basis.

In the case of our licensed engineers, it's somewhat problematic because they require clearance on an engine room simulator. There is only one of these in all of western Canada. It happens to be located in Vancouver, but with the demand that is placed on it, it is simply insufficient to meet the demand, so we can't meet the time schedule required for clearance on a simulator in order to get the endorsement.

We went to Transport Canada at the regional level and pointed out the problem to them. They indicated a procedure that we could follow, which would facilitate an interim endorsement of our engineers' licences so they could continue to legally operate in our engine rooms.

We acted on that advice and we duly advised all of our engineers of the requirement, only to find out within a week that it was not the case. They could not obtain the endorsement in the manner the regional representatives had advised us to use. On the contrary, they had to do something quite completely different, which included a registered time for clearance on the simulator.

We then had to re-advise all of our employees, which is a fairly time-consuming and expensive mechanism, and we then had to enter into negotiations to get times on the simulator for our engineers. We were not able to get times on the simulator, because that is not the manner in which the Pacific Marine Training Campus operates the simulator schedule. Pacific Marine is the training institution that has the simulator.

You can imagine that it was extremely traumatic for our employees who require the continued proficiency certificate in order to continue doing their jobs, thereby continuing to earn their salaries. And it was fairly traumatic for the B.C. Ferry Corporation as well, because they're vital to our operation. We can't run a vessel without engineers. That kind of thing is extremely frustrating for us.

Another area of concern that Peter has already alluded to is the failure to consult with the entire industry, and an increasing tendency, we feel, to consult with representatives of the eastern maritime industry and the Great Lakes carriers.

A recent example of that is a report on pollution clean-up issued recently by Mr. Gold. In the report, Mr. Gold refers to the fact that he has consulted the Canadian marine industry. However, the part of the industry that he apparently consulted is the Canadian Shipowners Association and the Shipping Federation of Canada, both of which represent eastern maritime interests and Great Lakes interests and do not represent the western marine industry. There was no consultation with the Chamber of Shipping of B.C., the Council of Marine Carriers, or the Western Marine Community, all organizations that represent the industry on the west coast.

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Again, you can imagine our significant frustration at the failure to recognize that there is a vibrant and flourishing marine industry on the west coast of Canada as well.

If I can move to our last area, the regulatory one, and be very brief, we have a couple of concerns.

First, there appears to be a tendency on the part of the federal regulator to impose trends that are evident in the International Maritime Organization - the United Nations agency responsible for international marine regulation - on the domestic marine industry regardless of whether the IMO has passed a convention or whether Canada is in fact a signatory to such a convention. The tendency on the part of the federal government is to immediately take up the trends that are floated through the IMO and impose them on the entire domestic industry.

In our opinion, these standards are most often suitable for deep sea foreign-going vessels, but often do not make sense for a domestic fleet that travels in sheltered coastal waters. I won't bore you at the moment with giving you examples of that trend, but we certainly can make them available to you if you wish to have details.

We have had discussions with Transport Canada regarding the imposition of some new regulations that are very reflective of the international trend. We have had some measure of success with Transport Canada, and I would like to thank them for lending an ear in this area, but it is a difficult situation because the tendency is always to move toward the international agenda.

Both the regulatory and the financial restrictions that we find ourselves operating under are affecting our competitiveness. I'm sure it's not news to this committee that competition for tourist dollars is becoming ever more intense, and we certainly have a significant segment of our traffic from the tourism industry. Therefore, we are very sensitive to trends in that area.

We are now facing increasingly direct competition from other ferry operators, particularly offshore operators who work in a regulatory framework that is very different from ours. It is much more liberal than our regulatory framework. They are also not subject to the same kinds of financial restrictions. Needless to say, our ability to compete is being eroded.

Mr. Chairman, that, in a nutshell, is our submission today. As I said, we're happy to answer any questions that you may have.

The Chairman: Thank you very much. I'll begin the questioning with Mr. Gouk, from the Reform Party.

Mr. Gouk (Kootenay West - Revelstoke): Thank you. First of all, you mentioned the 4¢ a litre federal excise tax that you pay. Would I be correct in assuming that you do not pay any provincial fuel taxes?

Mr. Mills: We pay 3¢ a litre in provincial taxes, as does any operator in British Columbia.

Mr. Gouk: I find it curious. I have a great problem, which will probably come out later in the day, with the manner in which fuel taxes are handled, both at the provincial and federal levels. But you're looking for relief from a federal excise tax, when as a provincial agency, you're still paying the provincial excise tax.

Mr. Mills: The issue is one of equity, in that we - and every other operator in this province - fairly and equitably bear a provincial fuel excise tax. The federal tax is applied selectively in some areas of the country and not in others. Given that we are in a tourism business and are competing with other tourism destinations, that represents a relative disadvantage to us.

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Mr. Gouk: Could you quantify the change in workload in terms of time and expense from the splitting of responsibilities of Transport now between Transport and the coast guard? Is that creating an inefficiency for you, or is that just a different way of dealing, once you've adjusted to it? Is there a cost factor there that's been imposed on you because of the split?

Ms Bardos: I don't think the split itself has imposed a significant cost factor on us.

The problem is that the split is just the first step in what occurred specifically with respect to the marine services fee, but it is only part of a long-standing continuum, which, as I indicated, is a general lack of consultation when changes of that nature are made, and also just our ability to respond in an effective manner to that regulatory framework because we're not consulted and because there is this lack of consultation, it appears, even within the federal regulator itself. So it's not so much the rejigging of the organizational structure in the regulatory body that is causing us the problem; it's a continuation of past concerns.

Mr. Gouk: I've made a note - that was certainly new to me; it's a new area - about the problem with the specified leasing property rules, as I'm sure my colleagues opposite have made note of that as well. It's something that's actually beyond this committee, but as it impacts on a user that is more directly connected to this committee I think certainly we'll all be taking a look at that.

With regard to your financing costs - I see you were $35.6 million last year - generally, what portion of that would be chartered bank financing? I would assume you do chartered bank financing.

Mr. Mills: We do. First of all, we use the provincial ministry of finance as our fiscal agent, so we in effect borrow from them. So our proportion of chartered bank financing reflects theirs, which I think right now is somewhere in the order of 25% to one-third. Most of our funds come through public bond issues.

Mr. Gouk: Banking is something that's moving to the forefront for all of us at this time.

With banks posting record profits, one of the things that's been brought to my attention for consideration is the fact that if you and I go there as a consumer, they borrow from the Bank of Canada and put a mark-up on it, then they loan it to us, and that's called business. But it seems ironic that they, through their monopoly as a private firm, get to take from the Bank of Canada and loan to a government agency, which is simply a representative of the taxpayer. Taxpayers' money then in fact becomes profit for the bank.

That's something I think several of us are going to look at in terms of financing through chartered banks, that perhaps governments funding things directly on behalf of the taxpayer should have either a direct or indirect access to the Bank of Canada rate as opposed to the chartered bank rate. So stay tuned for further development.

The Chairman: Thank you, Mr. Gouk.

[Translation]

Mr. Crête.

Mr. Crête (Kamouraska - Rivière-du-Loup): I have a few questions which I'm going to ask you one after the other.

First of all, I would like you to give us an idea of your traffic forecasts over the next two years, in particular of the distribution between regular users, people who use your service to commute to work or as a regular means of transportation within British Columbia, and the tourist component.

Second, according to your financial statements, you have a $21 million contract with the federal government to provide ferry, cargo and passenger services between the islands. I like you to give me a few details about this agreement.

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Moreover, if you're objective, do you think it would be possible, over the next few years, to commercialize your services, so that the corporation becomes financially independent and doesn't necessarily need any assistance from the government? In your brief, you compare your costs with those of some other ferry operations, including the service offered in Rivière-du-Loup. I would like to know if you think there is an any kind of symmetry between all these costs.

[English]

Mr. Mills: Let me start by dealing with the federal agreement, because I think I can answer the first question in conjunction with the third.

The federal agreement is an agreement between British Columbia and Canada that goes back to 1977. To sum it up, it is an agreement by which Canada would cease providing and funding services on the west coast in its own right, and the province would step in and provide those services on behalf of Canada.

This agreement has been in place since then. I can refer you to the briefing we gave in some detail in February 1995 to this committee. We explore in this submission the historical background of the agreement and the services we have performed under it to meet the obligation.

I would like to deal with traffic forecasts and commercialization, or financial independence, as two related issues.

Our traffic forecast for the future is slightly lower than it historically has been. Our traffic has grown historically at about 2.3% a year. We expect that it will be growing somewhat more slowly over the next five to ten years, not because of a drop in economic activity in the province but because we expect we will be having to charge higher prices for those services to fully recover their costs. So we expect while the demand for traffic, or the demand for our services, will continue to grow at 2% a year or more, traffic will fall to slightly lower levels because of our higher prices.

The breakdown of our traffic is different in each of our three areas of service. We have three phases of service in B.C. Ferry Corporation.

We have three routes that run between the mainland and lower Vancouver Island. There are very high volumes on those three routes, including a lot of commercial traffic and a lot of truckers using us as the highway to and from the island. There are a lot of residents as well, including two million people on one side and half a million people on the other. So there is a lot of inter-urban transportation. There is a very high seasonal component on this route and traffic in the summer is between two and two and a half times greater than traffic in the winter. Much of the tourism or seasonally related traffic consists of residents of British Columbia and the Pacific northwest rather than tourists from farther abroad.

The second aspect of our service is many routes in the Gulf Islands, the small islands between Vancouver Island and the mainland. Those are smaller ships providing services to smaller communities. There the financial losses are greater. The traffic component tends to be more local users, regular users, people who live on the islands commuting to and from the islands, although there is some tourist component there as well.

The third service is our northern service, which runs north of Vancouver Island into remote northern areas. The tourism component on this route is very pronounced and the traffic volumes there are three to four times in the summer what they are in the winter. The traffic is also highly international. The tourism component there draws from much farther afield than further down south. The bulk of the tourist traffic tends to be organized bus charters from Europe, particularly France and Germany, and there's a fairly strong international tourism component on the northern routes.

I do not have with me today forecasts for each of those market segments, but as I said, because of the higher prices we expect we will have to charge over the long term, we expect it to be somewhat less than our historical growth.

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Turning to how our expectation for those higher prices comes about, we are now at the point where our direct subsidy from the provincial tax base is about 1% of our revenues. This year we received a $4.7 million subsidy from the province, which is less than we are spending on the transportation of school children and people for medical treatment.

The federal payments are $21 million. That is related to the services we provide under this contract, and we treat this as a contractual arrangement and not as a subsidy.

So we are about 1% away on a cash basis from being independent, but we still have to deal with the fact that as a company we are losing about $40 million a year. So we expect that in the long run, if we are to be financially independent, prices would have to rise about 10% to 15% from their current levels.

[Translation]

Mr. Crête: How would your customers react if you applied the user pay principle, so that five years from now, your service would run without any governmental money and would be financed entirely by the users? How would this scenario be received?

[English]

Mr. Mills: I think there would be two reactions. I think customers who have the option to go elsewhere - this includes tourists and commercial truck operators who have options from private services to cross the strait - would, to some extent, migrate away from us to those other options.

Typically, into just about all of our locations passengers and drivers of regular size cars have no other options. They would be paying more than they are now. I think they would take issue with this because there is a widespread public perception in this province that our services represent an extension of the highway system. There is already a fairly high level of resentment. Perhaps this is too dramatic a term, but there does exist a level of resentment and frustration among the residents of the province. Residents feel they are already paying so much for what they believe they should be getting at a lesser cost because their fellow residents of the province in the interior, for example, have a publicly funded highway in and out of their community. So I would expect higher price levels would exacerbate this.

Ms Bardos: Mr. Chairman, having said that, the B.C. Ferry Corporation has in place what we call a stakeholder process. It is a process by which we seek to consult with our primary stakeholders, the residents of the communities we serve. Through this stakeholder process we are discussing these very issues Mr. Crête is asking us about. We are doing this in order to have a better understanding of how our primary customers, those who live in the communities we service directly, would feel about paying through the cash box a tariff that would move us closer to making all of our routes self-sustaining.

So hopefully we do have a mechanism for gauging what the mood of the public would be in this regard. Needless to say, we are very loathe to take steps to increase our tariff or to put forward schemes that would increase our tariff in a way that would be a hardship, particularly for those small communities relying exclusively on our service to get to locations with more public amenities than where they currently live.

The Chairman: Thank you. Mr. Comuzzi is next.

Mr. Mills: I should also add something with respect to the expected increases in tariff I was projecting. These are based on a premise that we would solve our financial dilemma now by tariff increases and only by tariff increases, and we do not expect this to be the case.

We expect we're going to be pursuing and we're going to be able to achieve some rationalization of efficiencies in our service. This rationalization is going to close some of the $40 million gap before we have to resort to price increases. So this represents perhaps a worst case or upper limit in terms of our expectations.

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Mr. Comuzzi (Thunder Bay - Nipigon): Thank you, Mr. Chairman.

How long have we been losing about $40 million a year?

Mr. Mills: That number has grown from a break-even about seven years ago. Last year it was about $30 million and this year it is $40 million. We crossed over into a red line position about five to six years ago.

Mr. Comuzzi: Government subsidies and contracts on your statement are $30 million.

Mr. Mills: Yes.

Mr. Comuzzi: Where do you get that from?

Mr. Mills: That represents the $21 million federal contract and -

Mr. Comuzzi: What do you mean by the $21 million federal contract?

Mr. Mills: This is the agreement between British Columbia and Canada to provide those services. It's an agreement with the province, but the province has assigned the funds directly to us because we're the ones providing the service. We are fulfilling the obligations under the contract.

Mr. Comuzzi: I see.

Is that through the transport department, Mr. Chairman?

The Chairman: Yes.

Mr. Comuzzi: Okay, and where do you get the other $9 million?

Mr. Mills: That is a subsidy from the provincial government that comes right off the provincial tax base.

Mr. Comuzzi: I see. Has that been consistent for a number of years?

Mr. Mills: That has been falling. In 1989 it was $51 million, and it has been reduced steadily over the last five years. The province, which is our de facto regulator in that it sets our prices, has been being raising our tariffs to compensate for that.

Mr. Comuzzi: I see. If I understand your submission, you're unhappy with this because of the regulatory control. Is that fair?

Mr. Mills: The issue is one of a juxtaposition of having a wholesale international set of regulations imposed upon us, some of which might be appropriate and some of which may not, and at the same time being unable to take advantage of the opportunities that someone operating in the international sphere would take to reduce our cost base.

Mr. Comuzzi: You're also unhappy with this over the financial restraints with respect to depreciation of capital costs.

Mr. Mills: That's one of the things I'm referring to. If we weren't a public agency domestic, we would be able to pursue those opportunities with shipyards, and now we cannot.

Mr. Comuzzi: I don't understand.

Mr. Mills: It boils down to this. If we were in a pure private sector world, we would be able to lease a ferry from, say, the B.C. shipyard that built it, and the B.C. shipyard would be able to claim against their income the capital cost allowance on that ship. We cannot do that, because under the Income Tax Act rules established in the late 1970s, we're not on the exempt list.

Mr. Comuzzi: That's why the airplanes have to be sold to an Irish company and they in turn -

Mr. Mills: My understanding of the history is this all came about when Air Canada ran a whole fleet of 767s through this and Revenue Canada said enough is enough. I don't think we're in that league.

Mr. Comuzzi: Are there other people offering these same services in British Columbia who are your competition but are private enterprises?

Ms Bardos: In certain segments there are. We certainly have direct competition for the commercial traffic in the form of CP, and we are increasingly seeing the advent of direct competition in the area of both vehicle and passenger ferries.

To be perfectly honest about it, the level of competition at this point in time is not high. We are still the predominant carrier on the west coast. There's no question of that. But we have seen competition in those two areas - the tourism area and the commercial area - and we anticipate that competition in those areas will rise significantly.

We also have the presence of very small carriers that provide commuter service from some of our smaller islands, but they're really so small that it would be unfair to characterize them as direct competition to the B.C. Ferry Corporation.

Mr. Comuzzi: Do they charge the same rates as you folks do?

Ms Bardos: No. They're usually water taxi services, so it's a different type of service and their rates vary.

Mr. Comuzzi: Is your corporate policy that if there were someone in the marketplace, under an enterprise system, who would provide a service, you would relinquish that service and go to those areas where you have to provide remote services? Is that a philosophy of your operation?

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Ms Bardos: At this point in time I can't say that we necessarily have a philosophy, if you will, in that area, because we've not been faced with that kind of competition. We certainly accept that part of our mandate as a provincial crown agency is that we are obligated to provide service in those areas that may not necessarily be cost-effective but where a service must be provided to a remote area.

The most recent example of that is our new route 40, which goes from northern Vancouver Island into some very remote communities in the mid-coastal area of British Columbia, which previously were serviced by a variety of private carriers. The service was found by the communities in question to be somewhat lacking.

What we try to do, of course, is couple the service that we provide to remote areas, which may not necessarily be profit-making, with a service that might conceivably be profit-making. We've done that with route 40, because it's also a tourism destination route.

Mr. Comuzzi: I'm a little familiar with the Alaskan ferry service. Do you have any interchange with them, or do you have an opportunity on your northern runs to dovetail - there's Prince Rupert and so on - and cooperate with servicing in those areas?

Ms Bardos: Not so much in terms of direct cooperation. We do have very close contact with both the Washington state ferry system and with the Alaska marine highway system. The Alaska marine highway has a terminal in Prince Rupert that is very close to ours and is one of their jumping-off points into their own service. We have contact with them, and we do some tourism opportunity marketing with both the Washington state ferries and the Alaska marine highway. But there is not a direct interlinking of service.

Mr. Comuzzi: Do you see that increasing in the future?

Ms Bardos: It certainly has the potential to increase.

The Chairman: Excuse me, we're running over time. I wanted to allow members as much time as possible because this is an important service.

Mr. Gouk, you can have one very quick and precise question.

Mr. Gouk: Given that the national highway system, where it goes through federal land, i.e., through national parks, is a federal responsibility, given that at least some of your major routes are an interconnection of that national highway system to Vancouver Island and given also that the water you cross is either under federal control, ownership, or jurisdiction, have you ever approached the federal government suggesting that they should have a funding obligation under this consideration?

Mr. Mills: That was one of the historical bases of the 1977 agreement with Canada.

The Chairman: Thank you very much.

From the B.C. Automobile Association, we have Mr. John Râtel.

Welcome this morning, Mr. Râtel. It's nice to see you here in Vancouver, having seen you just recently in Ottawa.

You are familiar with the system. I will not shorten your time because we ran over on the last one, but if you could keep your remarks to about 10 minutes, we could then have time for questions.

Mr. John Râtel (Director, Government Affairs, British Columbia Automobile Association): Thank you, Mr. Chairman.

I will respect your wishes, Mr. Chairman, and confine my remarks to as few salient comments as I possibly can. I'm sure the members of the committee have had an opportunity to read the formal submission that we sent to Ottawa some weeks ago.

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I want to thank the committee, first of all, for giving the British Columbia Automobile Association, or CAA British Columbia as we're known nationally, for this opportunity to appear before you.

My mandate is to attempt to influence particularly provincial legislation and regulation in a very wide area of interests, such as traffic safety; motor vehicle regulations; consumer protection; environmental issues; highway maintenance and construction; motor vehicle taxes; surcharges that are made on the motorist to fund transit; highway tolls; auto insurance costs and services; out-of-province medical insurance; and cross-border regulations. As well, we are a key stakeholder and supporter of provincial tourism.

I won't repeat the comments contained in our formal submission. I'm sure there's no need for me to stress to members of this committee the vital role that highways play in trade, commerce and tourism. I'm sure you are more than aware of that.

What I do wish to highlight, however, is in our view the chronic and deteriorating situation with respect to the standard of our national highway system. It is rapidly falling into neglect, and this is primarily because the federal government has not played the partnership role that it should play with the provinces in ensuring adequate funding.

BCAA, in concert with all affiliated CAA clubs across the country, believes emphatically that the federal excise tax on gasoline is being misappropriated. In a perfect world, all of the 10¢ gathered on the sale of every litre of gas would be used for the maintenance and renewal of our national bridge and highway infrastructure.

Gentlemen, we recognize this is not a perfect world. Every motorist and every trucking interest dealing with an almost gridlock situation and the crumbling infrastructure know only too well that it's not a perfect world.

Members of this committee should know that in survey after survey of our 3.8 million members, we've been told with absolute certainty that Canadian motorists believe that the taxes collected on the sale of gasoline must be regarded as a user pay levy and that these revenues should be returned by way of maintenance improvement of our national highways and our urban road and bridge infrastructure.

We believe the federal government has a responsibility to the citizens of Canada to join in partnership with the provinces in funding the renewal of our national highway system - 40% of which, gentlemen, is considered by the CCMTA to be below standard. Those standards, incidentally, were set by the federal government.

Ottawa collects more than $5 billion annually in gasoline taxes alone. Please note that this enormous figure does not include the tax that Ottawa collects on diesel fuel sales or with respect to the GST.

According to Mr. Mark Duncan, who is the director general for the Pacific region of Transport Canada, the federal government have spent only some $795 million on Canada's national highway system since 1990. That's less than $1 billion in five years. Of that sum, less than $30 million was invested in British Columbia. I put it to you, gentlemen, that's a terrible return on investment.

We estimate that British Columbia motorists pay the federal government some $600 million annually on their gasoline tax, and when added to the tax on diesel and the GST, we think this figure balloons to approximately $900 million annually. In other words, the motorists and truckers of British Columbia are contributing each year a figure that represents the federal government's reinvestment in our highway system nationally over five years.

We recognize that the federal government has chosen to reduce the deficit as their number one priority. But, gentlemen, surely you must understand that if we continue to choose to ignore the rapidly deteriorating state of our highways and the gridlock, choked condition of traffic, in the longer term we will only run up the cost of correcting the situation. Ultimately, we will only force this deficit to even greater heights. To delay this rehabilitation simply sends the cost sky-high.

.1255

I do not mean to be facetious, but I wonder if you recall a few years ago there was a very effective television commercial for a national chain of automotive transmission shops. The message concerning the need to conduct regular maintenance was very simple but very effective. A spokesperson looked out into the world of the television audience and said, you can pay me now or you can pay me later.

This is the message I hope this committee would take to heart and impress upon the Minister of Finance, who clearly needs to be persuaded that to invest in our highways will aid eventually in the reduction of our national deficit and debt.

I'm sure, as you will accept, good roads and good highways are precursors to prosperity, the creation of jobs and improved situations for those in the trucking and other manufacturing industries moving their goods and services to market.

Tomorrow the Canadian Automobile Association will begin a cross-country journey. The purpose is to gather signatures from road users, from local politicians and, yes, even from some provincial premiers, urging the Prime Minister to instruct his Minister of Finance to begin to dedicate at least 2¢ of the 10¢ Ottawa now collects on the sale of gasoline.

As I said a moment ago, in a perfect world all 10¢ would be used for the maintenance of our highway system. We realize of course it isn't a perfect world, so we're asking for at least 2¢ out of the 10¢ to go toward its intended purpose. We think a small step is better than no step at all. If the Minister of Finance were to take this action, we consider that within a decade our national highway system could be rejuvenated to the standard it should be at, including improvement and expansion.

In the United States and in Mexico, they are moving with rapid concentration to develop or to improve their interstate highway system. Obviously these countries see the value of highways within the NAFTA agreement. We should do no less, and we cannot do less.

While you were travelling here this weekend, you no doubt saw this article in The Globe and Mail. It's entitled ``The 68¢ government''. It contains a very compelling argument about the increasing irrelevance of the federal government as more and more of our taxes disappear into the general revenue with less and less return of service to taxpayers.

In fact, for those who reside in what is regarded as the ``have'' provinces such as B.C., Alberta and Ontario, the 68¢ return reduces to just 50¢. Please permit me to read you the subhead of this article. I think it's very compelling.

Canadians have rarely received so few benefits from their tax dollars, and the difficult times are just beginning. The consequence of this will be profound: tense interregional conflict, clashes between young people and the elderly, and, if things get really bad, class warfare pitting strung-out middle-class taxpayers against the dependent and needy.

Gentlemen, this is not irresponsible rhetoric. These sentiments are felt by an increasing number of citizens, particularly here in western Canada.

This committee could go a long way to reversing the trend of negative thinking by urging the federal Minister of Finance to pay attention to our national highway system and to support the commerce, trade and tourism dependent upon a first-class highway system.

Happily, CAA's voice raised in this cause is not unheard in every quarter. The Premier of British Columbia, Mr. Glen Clark, supports our efforts. The Reform Party of British Columbia now has as party policy the dedication of at least a portion of gas taxes for their intended purpose. Every year for the last three years the Liberal Party of British Columbia has put a motion on the order paper calling for a dedication of user fees for, again, their intended purpose. The Reform Party of Canada clearly understands this situation, for it has called for the dedication of taxes for specific purposes. For this, we thank them publicly and support them most sincerely.

.1300

Recently I received an organization chart setting out the names, contact numbers and the principal responsibilities of the senior management group heading up Transport Canada in British Columbia. I have copies here for you if you'd be interested. It makes very interesting reading, but sadly it sends a message that gives little cause for encouragement to the trucking industry and to the motorist.

When you read this organizational chart, you will see that ports, harbours and even ship safety are specifically mentioned. Airports and aviation have distinct areas with their own senior manager in charge. There is a multimodal division. Upon further reading, one sees that this is concerned with security and emergency preparedness. I agree these are important responsibilities.

Clearly, the one area that seems to be forgotten in this organizational chart is highways. There is a regional director responsible for surface, but upon further reading you see this is for the inspection of railroad operations. It's sad indeed that the most vital artery for Canadian trade, commerce and tourism doesn't rank sufficiently high enough that in Transport Canada's senior management group that someone is charged with overseeing this vital factor of Canadian life and industry. Of course, given the minuscule budget expended in British Columbia on highways by the federal government, one should not truly wonder at this.

In conclusion, ladies and gentlemen, may I urge you to realize that without proper constant reinvestment in our highway system by the federal government in partnership with the provincial governments, we will fall behind in the effective movement of people and goods. Tourism must ultimately suffer. Our trucking industry, which is charged for the movement of the huge amounts of goods and services by road, will obviously be negatively impacted. Ultimately, jobs will be lost if we permit our roads, bridges and highways to become congested to the degree of gridlock. This is to say nothing of lives lost as more traffic crashes occur. Business will look elsewhere, likely south of the border, and relocate where government recognizes the value to its economy of the road and freeway.

Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Râtel. Before I turn it over to the members, might I ask just one very quick question?

Mr. Râtel: Certainly, sir.

The Chairman: Has Premier Clark in B.C. committed himself to dedicating to such a fund the 2¢ from the tax he collects?

Mr. Râtel: Mr. Clark will participate in the formal launch of our cross-Canada campaign on Friday morning. I haven't been privy to his remarks as yet, but it is our expectation that, yes, he intends to make that public statement.

The Chairman: Thank you.

Mr. Comuzzi.

Mr. Comuzzi: Thank you, Mr. Chairman.

You are with the Canadian Automobile Association. Is this correct?

Mr. Râtel: That's correct, sir.

Mr. Comuzzi: I say this with respect. Sometimes we become so focused on our own activities we fail to look at the larger picture. We heard previous witnesses who just said the federal government has given $21 million a year on the water highway in British Columbia. This is a substantial amount. I happen to have seen a report within the last ten days saying all provincial ministers of transport and the federal transport minister, over a period of the last five years, have agreed on a form of restructuring and contribution toward the highway system.

Sir, as you are well aware, transport ministers can't spend money, so they go to the Minister of Finance. The Minister of Finance, when this item comes up on the agenda with the finance ministers from all the provinces, has asked the provinces what they are willing to commit to a trans-Canada national highway system and upgrading. That contribution from each province varies greatly.

.1305

They also asked what the provincial contribution should be towards the restructuring of this highway network and what the federal contribution should be in this endeavour. It ranged anywhere from the provinces saying it was a complete federal responsibility to as high as 35%.

They went on further and asked what they were willing to contribute financially over a 10-year period for the upgrading of the highways, with the federal government making their allotment. I know the province I was particularly interested in was the province of Ontario. They said they were willing to commit $3.6 billion over a 10-year period. I forget what the figures were for British Columbia.

I am not trying to defend them, but the federal government is truly trying to become a catalyst for some form of highway construction in this country. We can do this as long as we can get some unanimity between the provincial finance ministers - of this there is absolutely no question - on what the federal contribution should be and what the provincial contribution should be. The provincial finance ministers have to decide what they will contribute on a percentage basis to the highway construction and how much they are willing to contribute over a 10-year period.

Until the provincial finance ministers agree on some formula, we are stuck, as we are in so many other areas of the federal government, waiting for the provinces to make some allocation. I just say this to add to the information you submitted to the committee, sir.

Thank you, Mr. Chairman.

The Chairman: Mr. Râtel.

Mr. Râtel: I think this is a classic catch-22, because in speaking with provincial politicians as I do on a regular basis, their interpretation of this situation is essentially a reverse mirror image of what you just said. They are prepared to make the commitment if the federal government will do likewise. Because of his determination to tackle the deficit, the Minister of Finance is, to this point, apparently not willing to release those monies.

Mr. Comuzzi: No. No, I don't think that's quite true.

Mr. Râtel: I'm simply repeating what I hear from our minister of finance and our minister of transportation and highways.

Mr. Comuzzi: I don't think this is quite true. I think the very reason this committee sits is to try to establish some unanimity of thought. I would suggest very much, sir, that you meet with your finance minister in the province of British Columbia and get your organization, which is a well respected organization, to try to get some unanimity of thought from the provinces and to make a submission to the federal Minister of Finance. Then we could ascertain some contribution that is equitable and fair for every province. It is unfair that Prince Edward Island should say they don't think they should make any contribution to a federal highway system. That's not fair.

The percentage being talked about is a 60-40 split - 60% by the feds and 40% by the provinces. That seems to be something that may be liveable. I'm not sure. Every time we turn around we're getting shot at because we're interfering with provincial matters. Well, we'll to assist, but you guys have to get together, British Columbia and the whole rest of the group, and say what the hell you want us to do in highways. I think you'll find a receptive ear.

The Chairman: Do you want to respond, Mr. Râtel? Or shall we move on to -

Mr. Râtel: Mr. Chairman, you don't have time, I suppose, to engage in a debate. I shall take the gentleman's remarks to heart.

[Translation]

The Chairman: Mr. Crête.

.1310

Mr. Crête: You are right, we could spend a lot of time discussing the efficiency of our system.

As I was listening to your presentation and briefly leafing through your brief, I was wondering if you could tell us whether somebody has already tried to calculate the return on such an investment. A lot of arguments seem very logical, in terms of being competitive with Mexico and the United States, improving the accident rate and taking into account environmental concerns. Such analysis, I am sure, would be very expensive and would require a lot of time. I would like to know if such research has been undertaken somewhere and if it brought about tangible results which could be used as a model.

Mr. Râtel: Thank you, sir.

[English]

I can quote as a respected authority our affiliate organization in the United States, the Triple A, and through the CAA Triple A Foundation for Traffic Safety they have calculated that for every dollar that is spent in upgrading and maintaining highway infrastructure, the return to the economy is four times that. In other words, $1 invested gives a return of $4.

[Translation]

Mr. Crête: Don't you think we should explore the possibility of identifying those segments of the industry which would benefit the most from such a program and ask them to make a contribution? Some industrial sectors would certainly be willing to contribute if it would give them a competitive advantage. Don't you think it's an approach we should consider in the future?

Mr. Râtel: Yes, of course, sir.

[English]

I note that following will be representatives of the B.C. Road Builders and Heavy Construction Association. I'm reasonably persuaded that they will have facts and figures that will reinforce exactly our argument and I hope would answer your question more specifically.

[Translation]

Mr. Crête: Thank you, sir.

[English]

The Chairman: Mr. Gouk.

Mr. Gouk: Thank you, Mr. Chairman. Good morning, Mr. Râtel.

Mr. Râtel: Good morning, Mr. Gouk.

Mr. Gouk: I know we have spoken in the past and I won't dwell on what you've already acknowledged with regards to reform policy, other than that I did in fact write it. I wrote that policy for the federal level, but the intent was that governments in general, federal and provincial, should participate in that.

I hope you're correct in the commitment from Mr. Clark as you start your national campaign. However, the only way this is going to work, as has been stated already, is that the provincial governments participate in this as well, because of course they also collect the same tax as I'm saying should be dedicated as opposed to consolidated.

In response to Mr. Comuzzi, I think the easy way for that would be for the feds to say they will commit 2¢ if it is matched, and that lays it on the table in a very simplistic manner.

Has the provincial government been approached by your organization for the same specific commitment as you're asking from the federal government?

Mr. Râtel: Yes, they have, Mr. Gouk, and surveys of our members, which we conduct on a regular basis, indicate that they are more than willing to pay what they consider to be an equitable share of the cost of highway construction and maintenance. The only time members of the British Columbia Automobile Association object to higher fuel taxes or fees or things of that nature is when those are applied as a punitive measure to deter driving.

Mr. Gouk: Yes, the so-called sin tax.

Mr. Râtel: Correct.

Mr. Gouk: I have concerns because the provincial government in British Columbia has recently taken a dedicated revenue and -

Mr. Râtel: That's correct, sir, 1.5¢.

Mr. Gouk: No, it's a separate dedicated revenue in the forest renewal fund.

Mr. Râtel: Oh, I beg your pardon.

.1315

Mr. Gouk: That's why I'm not overly optimistic but still remain hopeful, nonetheless, that they will commit to this. And I would ask that they put it as a challenge.

I know you want to just have that money from them committed, and if all else fails, at least you have that provincial money. In honesty, I would like to see them hold it in such a way as to say that they will put it in, whether it be 1.5¢ if that happens to be the amount, provided the federal government makes their commitment as well. Although that sort of dangles a sword and says maybe you're not going to get that 1.5¢, it puts tremendous pressure on the federal government to do the responsible thing.

It's been said by the member across that they are prepared to offer but they need the dedication of those funds from the provincial governments as well. That then would put the onus on the federal government to follow the lead by, in this case, British Columbia.

Mr. Râtel: We will not have long to wait, Mr. Chairman. I don't know what your itinerary is; I suspect, though, that you're leaving B.C. very shortly. It's a pity, because at 10 a.m. on Friday morning the premier will be at the corner of Georgia and Hornby Streets, beside the Vancouver Art Gallery, and as I say, we will all hear exactly what he says and what the provincial government is prepared to do.

The Chairman: Thank you, Mr. Râtel. I'm certain we can rely upon you to fax us the statement that the premier makes.

Mr. Râtel: Mr. Alcock, I shall do that with pleasure.

If I many have just 30 seconds more, with respect to your office, sir, I would like you please to accept the very first of what I hope will be many thousands of posters that will soon be displayed all over this country of ours that declare ``Danger, No Work Ahead'' on our national highway system. I would very much like you to affix this in your constituency office. It invites your constituents to write to the Prime Minister urging him to support the national highway system.

The Chairman: Mr. Râtel, the clerk will get the poster, but I have one final question.

You talk about the dedication of 2¢. Is that 2¢ within the existing collection or is it an additional 2¢?

Mr. Râtel: No, sir, that is 2¢ within the existing collection.

The Chairman: Would your association support an imposition of an additional 2¢?

Mr. Râtel: As I say, surveys of members in British Columbia indicate that they are willing to pay higher fees and taxes if it results in improved surface facilities. I cannot speak for every club across Canada, sir.

The Chairman: I appreciate that, but if there were an additional 2¢, that would be acceptable as long as it was specifically directed to a fund for highway improvement.

Mr. Râtel: I'd like to have the benefit of surveying our members specifically on that question, sir. But my sense of the degree of frustration among the motorists of British Columbia is that I think out of desperation, even though they know they're currently paying all these billions of dollars that aren't being returned by improvements, they might say yes.

The Chairman: Thank you very much, Mr. Râtel.

Mr. Râtel: Thank you, Mr. Alcock.

Mr. Crête: Do you have it in French?

Mr. Râtel: Oui, Monsieur.

The Chairman: From the B.C. Road Builders Association, Mr. Anthony Toth. Don't get too cosy with him.

Mr. Râtel: You know that B.C. politics is incestuous, sir.

The Chairman: I know that all politics is incestuous, Mr. Râtel.

Mr. Râtel: Oh, you do.

The Chairman: Welcome, Mr. Toth. Could you keep your remarks to about 10 minutes so that we can have a round of questions.

Mr. Anthony Toth (President, British Columbia Road Builders and Heavy Construction Association): I just love following John Râtel and the automobile association. As you can anticipate, we have positions and interests in common.

I asked to have distributed to you a press release on the exact same campaign launching that is jointly sponsored by the Canadian Automobile Association and the Coalition to Renew Canada's Infrastructure. I have the honour of introducing the premier and I have the same expectation as Mr. Râtel does about the premier's announcement.

.1320

I have had our brief circulated to you just today. I apologize that it isn't translated into French. It was only finished yesterday. It would be my intention to very quickly go through the highlights of the brief within the 10 minutes you have allotted me.

You will note that throughout our brief there are little bracketed areas, ``TP 12800E pg. 6''. Those are references to documents from which we derived the figures. Sometimes those figures don't coincide with our experience and common sense, but I've decided to use them nevertheless because it leads back to a particular document that presumably has been blessed by all the powers that be.

By way of introduction, the B.C. Road Builders and Heavy Construction Association is an independent organization and we represent the road building and heavy construction industry. We're the industry that opened up this province and we continue to make it possible for goods and services to move freely and efficiently.

Our industry employs thousands. It enhances tourism; supports the resource industries; enables the trucking industry to operate; and builds and maintains the passageways to our ports, airports, ferry and other transportation terminals. I guess we also help the B.C. Automobile Association to exist.

We have a very strong collaborative relationship with the Government of British Columbia and with Transport Canada, but our strongest relationship is with the communities of British Columbia. The comments you will hear us advance are probably more in tune with the communities than with anything else.

We're also affiliated, as all other organizations tend to be. I've listed a number of organizations of which we are members. Two are particularly important today. One is the Coalition to Renew Canada's Infrastructure and the other is the Canadian Construction Association. We're directly affiliated with the CCA. We're on their board of directors and we're on their road builders council. We're also funders of their road information program. Because of our affiliation with those two organizations, of course, we have seen the drafts of their briefs that I think they will be presenting. I don't think you've seen them yet.

We've prepared our brief in such a way that we don't duplicate the effort. However, we do most strongly concur with CCA in its recommendation that the federal government should formally recognize Canada's national highway system. We agree that the federal government should recognize a need for a long-term five- to ten-year plan to modernize the national highway system through the development of a national highway plan, with appropriate investment commitments. We also concur that the federal government should consider the creation of a national highways trust fund. We recommend that fund be funded from an identified percentage of the existing federal gasoline taxes.

We feel that the last Canada infrastructure works program was extremely successful and we strongly support the request by several premiers, the CCA and the CRCI and other groups, for another national infrastructure enhancement program. We think the new infrastructure program should strategically focus on highways as a means to enhance Canadian tourism, employment, productivity and international competitiveness.

We caution, however, against over-analysing the situation. As the CRCI brief points out succinctly, the link between trade, tourism and highways is an obvious one. We feel we should get on with the critical business of rehabilitating and developing our aging and underdeveloped transportation system before that system chokes the Canadian economy into irreversible backwardness.

The need is obvious, urgent, and as the CCA brief urges, with a systematic initiative of cooperation a national highways program between the federal and provincial governments can solve the problem.

We think the time has never been better than now. We feel this committee should just go ahead and recommend that a new infrastructure program be implemented by the federal government.

We think that program should be clearly strategic in outlook. By ``strategic'' we mean producing the greatest economic benefit and expenditure on projects that resolve public safety concerns. We urge you very strongly to avoid the simple expedience of distributing resources strictly by population across the country.

.1325

Strategic thinking is the basis of several conclusions in the studies prepared by Transport Canada. As they indicate, there are major congestion areas in Montreal, Toronto, and Vancouver. Those are critical problem areas. Clearly, one of the main focal points of the national infrastructure program should be the reduction of traffic congestion in those overloaded areas.

Strategic thinking is not new. Strategic thinking was involved in the Canada infrastructure program, whereby $125 million was devoted to the rehabilitation of federally owned bridges in Montreal.

We also believe in fairness. We urge that fairness be a basis of the next infrastructure program. For us British Columbians, for fairness to prevail now, the program will have to be designed to counterbalance and compensate for the cumulative previous regional imbalances of past federal contributions to highway projects.

If you add up the numbers, you will see that $1.259 billion is being devoted to the Atlantic region, whereas the figure for British Columbia, which has more population, more economy, is $30 million. It's not fair, it's not strategic.

I added up the dollar amounts that Transport Canada's highway contribution programs will yield to the Atlantic provinces.

The Chairman: Is that $1.294 billion versus $30 million?

Mr. Toth: Under comparable programs we're getting $30 million, with contributions ending in 1997-98 for highways. The documentation, if you wish to look it up, is there. It's ``TP 12799E pg. 10''.

I would like to refer to British Columbia's situation. Our highway system is in desperate need of development and refurbishment. This is particularly true of the 5,500 kilometres that are designated as national highways.

Our population is increasing. There is relentless pressure on all our transportation systems. We are the second-most urbanized province in Canada. Of the top five heaviest traffic areas in the country today, the second and the fourth heaviest areas are in British Columbia.

Our traffic is regularly forced to grind to a halt. If you folks haven't visited during rush hour, please do so. Highway 1 from Vancouver to Surrey is referred to as a parking lot. Its volume-to-capacity ratio is a staggering 169% average annual daily traffic. It's higher than that during rush hour.

Similarly, Highway 99 from Delta to Vancouver has a volume to capacity of 106% average annual daily traffic. This clearly causes environmental problems. If you want to reduce pollution, speed up the traffic so that cars can burn off the fuel more efficiently.

We have run out of time in British Columbia. Our pavements are aging beyond reason and must be replaced. Roadbeds must be redesigned. As John of the automobile association intimated before, we have an extremely high inventory of pavements aged older than 15 years. This must be looked after. It cannot be ignored. On average, nearly 40% of the roads in our province are older than 15 years. In some areas it's worse. On Vancouver Island, prior to the onset of the Vancouver Island highway project, 59% of the roadways were older than 15 years. It's astonishing.

We cannot stall rehabilitation. There are safety concerns. I think these safety concerns are clearly identified. The safety concerns particularly on Highway 1 east of Kamloops - and this is not just anecdotal or political statements - are recognized by Transport Canada. I refer you to the statements in Transport Canada's own studies in our brief here.

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With respect to financing, British Columbians, based on the documents I have read - 1993 was the last year for which I found active figures - get back less than 3.5% of our excise taxes. If you follow the whole program from 1993 to 2003, British Columbians will be paying $2 billion in federal fuel excise taxes and are scheduled to receive back for highways $30 million.

Gentlemen, that is not appropriate. It is embarrassing for us, and we desperately need help.

If our fuel taxes were returned to us by way of federal assistance, I think we would not need to look to the extraordinary methods of financing such as tolling and public-private partnerships.

That concludes my presentation, and I'd be happy to answer your questions.

The Chairman: Thank you. We have time for a very short round of questions.

Mr. Crête.

[Translation]

Mr. Crête: In your presentation, you spent a lot of time on the problems experienced in locations which are heavily populated.

Don't you think that we should somewhat broaden the scope of possible alternatives? Among those alternatives - particularly in heavily populated locations, such as major urban centres - the use of public transit, such as the underground or the bus, should be taken into consideration. What you propose reflects what happens in many cities in North America where the highway system is quite huge; however, you have to realize that there will always be more cars than the roads can handle. Look at what happens in Los Angeles and other similar cities.

Don't you think that it would be preferable to establish, right at the beginning, a much broader plan? Moreover, besides the density of population, which other criteria should be taken into account to establish priorities?

[English]

Mr. Toth: Thank you for your question.

I can't speak authoritatively for other cities or other provinces. I can tell you that British Columbia, in the Greater Vancouver regional area, is different from other cities. Our roadways and highways are extremely underdeveloped. We do not have a proper cross-feed.

When I mentioned to you that volume-to-capacity ratio is 169%, that's for the current population. We have a continuing influx of population, so we need to redesign just to catch up to what we should have provided for years and years ago. Over and above that, in the future as population increases, we have to consider other means of transportation such as intermodal connections.

Aside from congestion, what criteria should be utilized? Fairness is one, strategic outlook is another. I listed some of them. What creates the greatest benefit for the greatest number? Where do the greatest safety problems lie? That's why I mentioned Highway 1 east of Kamloops. By the way, the interesting thing is that on the highway there's a four-lane, 16- or 17-kilometre stretch on which the accident rate is minimal. If you go beyond that, where there are two lanes and curved roads, the accident rate skyrockets. That's why I focused on that one.

Those are some of the criteria I would commend to your attention for choosing where money should be allocated for highway improvement programs.

Mr. Gouk: I have a fundamental problem with our tax system in this country in its entirety. I think there's something fundamentally wrong with a system that takes all our money at the beginning of the year and then reduces us to begging for our own money back. Under that philosophy, rather than a federal government funding specific portions of construction within British Columbia, would you be in favour of a system that did something like the transfer of tax points, if it reduced its excise tax on fuel and transferred the ability to tax that amount to the provincial government so that we could control it here with our own provincially elected officials to allocate within our own province? Would that be an acceptable process to follow?

.1335

Mr. Toth: If we had a normal needs situation, the answer would be yes, we would support that kind of system. We do not have a normal situation. Our road and highway system is decrepit; it desperately needs assistance to the extent that we cannot do it ourselves. Transferring back existing tax credits isn't going to cover it. We need money. We need a lot of money. We didn't get very much money in the last round. We need more. We need more than our population share would indicate. The need is desperate.

Mr. Gouk: I've been to places like Labrador. You showed a grading of highways here. When you get down to ``poor'', you would have to start inventing words to describe what they have.

You see, that's the problem when you start relying on arbitrary distribution by the federal government to make those choices. That's why I would be inclined to favour their getting out of our pockets and our looking after ourselves, and I say that as a British Columbian.

The Chairman: Thank you, Mr. Gouk.

Mr. Toth, as a person who spent some time living in Aldergrove and driving along Highway 1 back in the mid-1970s, and as someone who entered that same highway at 6:15 a.m. on Monday, I understand what you're talking about. I couldn't believe it. We were bumper to bumper at 6:15 a.m.

I wasn't certain what you said at the end of your remarks about the question of funding alternatives - design, build, operate. There is a section of toll road here in British Columbia. There have been alternatives for financing infrastructure that don't necessarily call for tolls - the design, build, operate, lease-back. There are a couple of bridges in the country that have been done that way. Yet I thought I heard you discount that. Does that mean your association is not supportive of some of those alternatives?

Mr. Toth: No. If that's the impression I gave, I apologize. We are extremely supportive of alternative methods of financing.

What I was saying is that if we had returned to us the fuel excise taxes we send out, or a bigger proportion of that which we send out of this province, we would not need to rely on those alternative methods of financing. All of those methods of financing, if properly structured, could be very effective. They're proven in other areas of the world and in some areas in Canada.

The Chairman: Thank you very much.

Mr. Toth: Thank you. I appreciated the opportunity.

The Chairman: From the Yellowhead Highway Association, welcome, Mr. Forgrave.

Mr. Thomas D. Forgrave (Resolutions Chair, Yellowhead Highway Association): Thank you.

Mr. Chairman and members of the committee, maybe I could begin by telling you a little story about a group of theology students who lived in residence. They had a custom before the evening meal. They'd wait until everybody gathered around the tables and one of them would say grace. They'd take turns saying grace.

You know, when people are eating in a group, there's always somebody who complains about the food. But this particular night they found out that they were going to have some kind of hash for dinner, which they were all convinced had started out as Sunday's roast beef, went through as hot beef sandwiches on Monday, and on and on, until it got to this hash with all the other leftovers from the week, so everybody was complaining.

Finally, one wit asked, ``What's the guy who's going to say grace going to say without being a hypocrite? Nobody's very thankful for this food.'' It came time for grace. The follow stood up and said ``Hebrews 13:8'' and sat down. That's all he said.

They gobbled down what they could of what they had to eat and rushed back to their rooms to look up in the Bible the verse Hebrews 13:8. They found the verse, which reads: ``Jesus Christ is the same, yesterday and today, yes, and forever.'' Now, I hope you don't think that about this presentation.

.1340

Some hon. members: Oh, oh!

Mr. Forgrave: You have the brief that's been submitted by our association. I'd like to review the highlights of our submission and then answer any questions the members might have.

I don't pretend to be able to speak for all Canadians who might be affected by a national highway program, but I can represent with confidence the views of the members of our association.

As a matter of fact, at the first annual meeting in 1947, the members passed resolutions calling for the creation of a Canadian highway commission with 50-50 federal-provincial cost-sharing for construction of designated highways and cooperative action by the federal and provincial governments to make a Canadian highway system a reality. In more recent times the members have unanimously supported the implementation of such a program at our annual meetings since 1994.

Perhaps I could ask you to refer to the maps we have provided. The Trans-Canada Yellowhead extends from Winnipeg to Saskatoon to Edmonton to Prince Rupert in the north and through Kamloops to Merritt in the south. Almost every municipality along those routes is a member of our association, as are 250 businesses whose commercial viability is significantly linked to the highway. So the membership is broadly representative of the 2.7 million people or so who live along the route.

Those municipalities, whether or not they are also served by air, sea or rail, all view the Trans-Canada Yellowhead as a significant element of their economic development strategy.

The consensus that was achieved by the federal, provincial and territorial governments in 1995 on what highways would be part of a national highway system included the entire Yellowhead route. So we have an obvious interest in these hearings of your committee.

People who travel the interstate highway system in the United States continually report two impressions to us: the ease of driving, in terms of both the standard of the road and the facilities available, and the number of trucks on the road. In order to promote rubber-tired tourist traffic and the efficient movement of goods, we need similar-quality roadbeds, highway standards and facilities for both the leisure and business travelling public. In many places, even the ten old trans-Canada routes are no match for those interstates.

The Trans-Canada Yellowhead is twinned from border to border in Alberta, but if you're coming from Winnipeg, you'll encounter a great variety of highway standards along the way. Similarly, when you leave to the west from Alberta, you're suddenly on a different standard of federal highway in Jasper National Park and then other standards in British Columbia.

You'll all be familiar with the old adage that a chain is only as strong as its weakest link. Well, a highway is only as strong as its weakest bridge.

The consequence is that traffic is dropping down into the States for trips that are really east-west trips across Canada. Anyone who has done the trip knows the easiest way to drive from Edmonton to Ontario is to Yellowhead it to Saskatoon and then drop down through Regina into North Dakota and take Highway 2 across the northern states.

People from the individual states tell us the development of the interstate system would have been a pie-in-the-sky dream without the participation of the United States government. In our view, that situation applies in Canada.

Under the Canada agri-infrastructure program, the Government of Canada has recognized the importance of the burgeoning truck transportation of agricultural products and that this is not something municipalities can handle alone. So that program offers two-thirds federal funding to upgrade municipal roads in the prairie provinces that are affected by increased truck traffic as a result of rail line abandonment and grain elevator consolidation.

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Our association's position is that the national interest would best be served if a similar type of program arrangement was made with the provinces and territories for a national highway system. We believe that governmental partnerships are essential to ensure that the people of this country have a roadway system that will allow them to see the country in all its diversity and to ship goods efficiently from one place to another within the country. The free trade agreement and the North American Free Trade Agreement have directed attention to the north-south movement of goods, but for Canada itself the east-west movement of goods is critical.

We need a consistent set of roadways across the country to keep the trucks moving within our boundaries, as they bring export grain to Prince Rupert or Vancouver, equipment to the oilfields, chemicals to the pulp and paper mills, lumber to the house construction markets - for all of which the Yellowhead is a key route. We cannot speak for the western provinces, but from our regular contacts with the ministries of transportation and highways, we're confident that all four provinces support such a program.

The details of the arrangements are properly the subject of federal and provincial territorial agreement. We simply want to impress on you that Canada, in our view, needs a national highways program that ought to include the following components: a cooperative federal-provincial-territorial approach; a system of designated highways; a set of minimum standards for those highways; committed funding sources that are not subject to the vagaries of annual budget decisions; funding sources related to roadway use; a standard formula for allocation of federal funds to the provinces and territories; and a standard formula of cost-sharing between the federal, provincial and territorial governments for highway construction to the agreed minimum standard.

So we have proposed that there should be a national highways program that includes the national highways trust fund, into which designated federal revenues would be deposited and allocated to the provinces on an agreed cost-sharing formula.

It all sounds pretty simple and logical to us, and that's the additional component we would want to urge. Keep it simple, logical and fair to everyone. Make it flexible enough that it can deal with local needs without compromising the fairness of the program.

Mr. Chairman, we believe this program can be done. We would urge you and the members of the committee not only to make that representation to the federal minister and your colleagues in the House of Commons, but also to work to make it a reality.

The Chairman: Thank you.

From the Reform Party, Mr. Gouk.

Mr. Gouk: Thank you, Mr. Chairman.

When you talk in terms of a national fund for allocation, would you feel this should be done on the basis of putting it into, as it states there, a national fund from which the provinces attempt to draw within various levels, or should it be done on a province-by-province basis?

Mr. Forgrave: The position the association has taken consistently is that it would be good to have a national highways trust fund into which the federal moneys would be deposited. Then they would be allocated to the provinces on an agreed formula that applied to everybody.

Mr. Gouk: Would it be agreeable to you, or would it feasible in your opinion, that the source of this be a specific portion of the federal excise tax on fuel?

Mr. Forgrave: Our position is that it should be that, and any other road-related revenues that the federal government has should be part of the sharing.

Mr. Gouk: Do you feel it needs to be all revenues or would it be sufficient if it were a specified portion of revenues from that sector?

Mr. Forgrave: If it were a large enough portion of the excise tax on fuel to have a material effect on the construction of the highways, that would be satisfactory to us.

Mr. Gouk: Thank you.

The Chairman: Thank you. Mr. Keyes is next.

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Mr. Keyes (Hamilton West): Thanks, Tom, for your presentation to the committee. It's short and to the point. I am certain that most would agree that a national highways program would certainly create a safer, less congested, less polluting, tourism-attractive environment for our country.

In all the presentations we've heard today - and they paint the going picture of the need - the question of how much, combien, which is usually the bottom line on any program that might be initiated, is never addressed in these questions. They have great ideas on how to finance it and that the federal government should pay for it, but....

You're the first of the different witnesses that I'll ask this question to. What would you estimate, Tom, would be the cost of a national highways program?

Mr. Forgrave: Mr. Chairman, I'm sorry, we do not have an estimate of what the cost of a national highways program would be. We need to know the outside parameters of what government programs are going to cost, but I personally think - and I can't say this is an association view - it would be a mistake to say we're trying to make a $100 billion decision, or whatever the figure might be, on this program. Rather, we should be saying we're going to take it step by step as we can handle it. We can handle a $100 million contribution to the fund this year, and we can commit that for the next four or five years, so there is a committed source of money going to the fund. That'll let the provinces get started on upgrading the designated highways to the required standards.

Mr. Keyes: Let's use that as the starting point. I want to enlighten especially my colleagues opposite who have been talking about the dedication of tax money that should be there for a national highways program. The fact is that the federal government already contributes $100 million toward subsidizing and aiding provinces in order to repair our highways across this country. This is the incremental step that you spoke of, Tom, just now.

The program could not possibly be a one-year program or even a two-year program, and doubtfully a three-year program because of the nature of the work, the tendering processes, the actual construction of the highway, etc. You're probably looking at a minimum four-year program. On top of the four-year program being a minimum, a federal contribution toward a reasonable highways infrastructure program that would do the work necessary to address the need being discussed here today is literally billions of dollars. This is just from the federal component. It would mean additional billions from the provinces.

It's wonderful to wax eloquent about the need for a national highways program, but where the hell does the money come from? I suppose we can sit back and say out of need, necessity, and the opportunity that presents itself for the better highway system...but I think the highway system in existence in this country is one of the best, if not the best, in the world anyway.

I think we have to stop with the B.C. Road Builders calling it the ``serious deterioration''. Everything deteriorates, but let's face it, we have a hell of a nice highway system in Canada compared to other countries. The amount of money, the combien, the bottom line, is billions of dollars, when we in this country have been pressed and pushed by organizations that will even be coming to us today asking for billions in order to initiate a national highways program. They say, you had better get your deficit down, you had better get your debt down, you had better get our economy on the roll, and you had better get your interest rates and your dollar down before we can increase exports, etc., but, by the way, I sure would like $4 billion for a national highways program.

You can see the dilemma we face.

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Mr. Forgrave: I can just comment from my own experience in Alberta.

The Alberta government, as you know, has bit the bullet on annual budgetary deficits and has now gotten to a place where it's actually paying down the debt. For the first two or three years of that exercise there was very little new construction work on highways, just maintenance. But now that the budget exercise has been achieved, the government is looking seriously at where it needs to invest in infrastructure.

One of the big investments it's going to make is in Highway 2 north and south, which it calls the export highway, which is related to the transport of goods from Mexico through the States and Canada to Alaska. In fact, in Alberta the number 1 and the number 16, the Yellowhead, are both twinned border to border. When the work is done on Highway 2, most of the national highway system work is going to be done in Alberta.

Other provinces are doing their bit as they can, but the people in the States say they would never have gotten this interstate system if they had not had federal involvement.

Mr. Keyes: Absolutely correct, and I appreciate your answer. What I glean from it is that timing is everything, and once you have your fiscal house in order, then you can proceed to the programs and start to priorize and understand the benefits in return for the country when it comes to, for example, creating a highway system that is networked and intermodal with other means of transportation in order to progress with opportunities of trade, intermodalism and all the rest of it that furthers our whole effort.

Thank you.

The Chairman: Thank you.

Mr. Crête.

[Translation]

Mr. Crête: Thank you, Mr. Forgrave.

I think it's important to note that the costs of the highway system belong in the category of capital expenditures rather than operating expenditures. What has to be taken into consideration first is that there is a return, rather than the fact that money has to be spend to produce it.

Could you tell us, using Yellowhead as an example, which segments of the community are going to benefit the most if this project is undertaken. Who is going to find it beneficial? Before investing in this project, the government will want to know whether it will get a return which will be equal to its investment or higher.

So, to start you thinking about this, who are the people and the groups who are going to benefit the most if this project is implemented. Do you think the game is worth the candle?

[English]

Mr. Forgrave: The Yellowhead is a unique organization because it covers four provinces. The Western Diversification Office of the federal government has seen the Yellowhead as an interesting vehicle to use to promote tourism in western Canada - because we're not just one province; we represent the four provinces.

There have been some major initiatives over the last five years in partnerships between our association, Western Diversification and the provincial departments of tourism to promote tourist awareness of the attractions along the Yellowhead route, particularly in the United States, where tour companies had no idea that the Yellowhead even existed.

One of the offshoots of that is traffic is increasing at a higher rate on the Yellowhead Highway than it is on Trans-Canada number 1. Part of the reason for that is if you're driving through the mountains, it's a lot easier to drive the Yellowhead Pass than it is to drive the Rogers Pass, where number 1 goes through.

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By the way, if you were looking at trying to make a four-lane highway across the country, it would be a lot cheaper to make it through the Yellowhead Pass than to try to expand Highway 1. Don't ask me for the figures. That's just an observation we'd like to make.

So tourism is certainly one of the economic spin-offs from the improved and increased use of this highway.

Most of the major economic developments in western Canada lie north of the Yellowhead Highway. So the Yellowhead is the land route, the rubber-tire route, for providing goods and services to those developments and for shipping their products out if they're not products that are shipped by rail. So there is a considerable economic impact to traffic on the highway, too.

The Chairman: Mr. Cummins, one very short question.

Mr. Cummins (Delta): Quite briefly, I would just like to note the reference here to the transportation system in the United States, the interstate highways. If you leave Vancouver you can head south to Los Angeles on the I-5. If you haven't driven it, you should. It's an easy route to drive. The highway right through to the Mexican border is in outstanding shape, a distance of 1,500 miles. You really don't experience that if you head 1,500 miles east out of Vancouver. There's quite a difference between the quality of the roads.

Basically, it's a matter of a lack of money being spent. I think the point Tom is making about ease of communication is an important one. Not that long ago in this province, to travel east from here you had to go down and hook up with Highway 2 in the United States. If you go back a little more than 30 or 40 years that was the only route to do it.

So I think it's important that this idea he's proposing be given some serious consideration. I certainly would underline it.

The Chairman: Mr. Cummins, I would of course point out that along the 1,500 miles south you have 35 million people. You have only 6 million people 1,500 miles west. However, that's not to say we don't need high-quality roads in Canada.

Thank you, Mr. Forgrave.

Mr. Forgrave: Thank you.

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The Chairman: We will now hear from Mr. Peter Barnett and Mr. Paul Vallee, both from Tourism Vancouver.

Mr. Barnett, I take it you'll be leading this presentation. If you could try to confine your remarks to about 10 minutes it would give members an opportunity for questions and some dialogue.

Mr. Peter Barnett (Chairman, Tourism Vancouver): Thank you, sir. This is a submission from Tourism Vancouver. We're pleased to be invited to present this to the Standing Committee on Transportation.

As you are aware, tourism is a leading contributor to the economic viability of our city. We have prepared a chart for you at the end, which will give you some statistical data.

Located at the air and sea gateway to the Pacific Rim, immediately above one of North America's busiest international border crossings, at the anchor point of Western Canada's highway and rail systems, and as the home port of the Vancouver-Alaska cruise ship fleet, we are acutely aware of the significance of transportation to tourism industries' success. With this in mind, we would like to submit the following for consideration.

We commend the Government of Canada and the Department of Transport for the decisive actions taken to improve international air access to our city, to British Columbia and to western Canada. The open skies accord, the initiative on international rates for Canadian carriers on the basis of use it or lose it, and the major expansion of facilities at the Vancouver International Airport have given our tourism industry important new tools to work with in attracting future business.

Though only implemented in February 1995, open skies has already resulted in a dynamic increase in the number of passengers using the Vancouver International Airport. The addition of new direct routes made access to our region from major population centres far easier. Tourism Vancouver believes, however, further action must be taken to help ensure the viability of these added routes.

The economic benefits of international passenger traffic growth, particularly from the Pacific Rim, are extremely significant for the business community, the workforce and governments at all levels. These ongoing benefits will be enjoyed not just by Vancouver and B.C. but will be shared with the other Canadian provinces and territories.

Expanded airport facilities were essential to the implementation of open skies, and Tourism Vancouver applauds that decision to proceed with this infrastructure. The design of the new terminal building is commendable from many perspectives, its introduction of passengers to our Canadian native culture being one of note.

Tourism Vancouver congratulates Canada Customs and its staff members for their extra efforts in working with the tourism industry to adapt services to the new airport environment.

As to the future, further federal government action and support is required if the Vancouver International Airport expansion is to realize its full potential.

First, a marketing program is needed to build awareness of new airport facilities and to promote Vancouver, British Columbia, and Canada as destinations in those cities now having direct air access.

Our cost competitiveness vis-à-vis the other airports must be improved by eliminating the GST on transborder flights and reducing or eliminating provincial fuel taxes on international flights.

Third, B.C. regional airports must be expanded to provide requisite linkage between Vancouver and visitor attractions throughout the province.

Fourth, connections between the airport, the highways and other transportation systems must be substantially improved.

Finally, multilevel planning is needed to address the next stage of airport expansion.

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After service, safety is always a priority in transportation, particularly in air transport. When conditions are deemed unsafe for flying and aircraft are grounded, the plans of air travellers, including those on group tours, are often severely disrupted.

Visitors from Japan and other Pacific Rim countries expect that when such a travel disruption occurs, their immediate needs arising from the situation, including accommodation, dining, and local transportation, will be met. When these expectations are not met, the image of the host country is tarnished, as well as that of the carriers.

Tourism Vancouver would like to recommend that the Ministry of Transport investigate the various options to ensure that all Canadian carriers provide the services and amenities required by passengers whose travel is disrupted for safety and related reasons.

Relating to roads and highways, our national highway system provides direct access to the vast majority of Canada's attractions and simultaneously distributes tourism revenue to virtually every corner of the country.

One highway, the ``Sea to Sky Highway'', is of particular significance to our region as it directly links Vancouver with Whistler's internationally acclaimed multi-season resort. This resort also serves as a feeder to interior B.C. communities, with considerable tourism potential of their own. Highway access between Vancouver and Whistler is now hindered by intermittent mud slides and debris torrents, with attendant safety concerns.

We would like to submit that any federal initiative to improve the national highway system not be complete unless it contributes to the all-weather upgrading of this unique, stunningly scenic route.

The ease and swiftness of border crossings at highway entry points between Canada and the U.S. remain a topic of great interest and concern to Tourism Vancouver. U.S. visitors represent a substantial market component to our tourist industry, and highway access is a dominant mode of entry.

Lengthy delays are still faced by visitors at highway entry points, particularly during the peak summer season, which discourages U.S. travellers from visiting Canada. Tourism Vancouver urges the federal government to press ahead on all fronts to facilitate highway-based entry from the U.S.

Improvements to the national railway system must address issues relating to intra-city as well as intercity travel. Growing traffic congestion in urban regions is making it more and more difficult for our motor coach and taxi operators. They all play such a vital part and role in linking visitors with air, rail, and ferry transportation. Tourism Vancouver feels that cities with a high density must be given tools to increase road capacity; that is, better highway design, including enhanced signalling systems.

Federal funds are going to be necessary for the research and development activities to find the solutions to increase road capacity so that motor coach and taxis are able to meet the visitors' needs and expectations. One immediate step that can be taken by governments to ease the tourism industry's traffic congestion woes is to schedule routine highway maintenance for off-peak travel season periods.

Next is passenger rail service. Visitors wishing to see particular west and mountain scenery by rail currently have several options, either originating or concluding in Vancouver. The dramatic increase in ridership on the Rocky Mountaineer since the service was privatized six years ago, from 7,200 passengers to well over 40,000 annually, confirms that there is indeed a large market for this up-close and low-stress holiday travel experience.

Further government encouragement of such private sector initiative is warranted in both the rail sector and other areas of tourism industry. VIA Rail has also enjoyed an increased profile and ridership on its Vancouver to Jasper to Edmonton route. Tourism Vancouver envisions rail tourism as an important market for future growth potential, but this growth should not be taken for granted.

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Passenger service on the B.C. rail from North Vancouver to Prince George is one more rail travel option. Daily excursion service is also offered on the B.C. rail to and from the Whistler resort during the peak season. Recent cutbacks from daily to alternate day passenger trains on the BCR main line discourage development of tour packaging along this route. Tourism Vancouver would like to see BCR revisit its earlier decision on passenger service curtailments. Intermittent passenger rail service undercuts tourism operators along this route in their efforts to add to the diversity of our tourism packages.

The introduction this year of daily Amtrak passenger service, the Mount Baker International, between Seattle and Vancouver has proved highly popular in its first year of operation. The service opens up a valuable north-south travel corridor link in the U.S. to Canadian tourism destinations. It is again demonstrated that there is substantial market for properly planned and aggressively marketed passenger rail services.

Tourism Vancouver supports continued effort to expand and enhance north-south transportation links and promote the creation of new tourism products involving Canadian and U.S. attractions along the west coast of Cascadia.

By virtue of the international nature of this travel corridor, the federal government will need to play a pivotal role to facilitate expanded north-south passenger rail travel.

With respect to cruise ships and ferries, Vancouver is not only the gateway to and from the Pacific Rim but also the home port for the Vancouver-Alaska cruise ship fleet from May to early October. The expansion of the cruise ship business here over the past decade has been remarkable. Now some 700,000 passengers from around the world annually travel the inside passage along the B.C. coast to Alaska and inject $200 million in the provincial economy. The federal government receives a substantial share of the direct and indirect tax revenue resulting from this spending. As the port is under federal jurisdiction, Tourism Vancouver looks to the federal government to provide the leadership necessary to ensure the continued success of the Vancouver-Alaska cruise ship fleet, including expanded cruise ship facilities.

In addition to the existing Alaska-bound cruise experience, there is great potential for pocket cruisers to tap a whole new visitor market. These shorter-duration cruises would explore our scenic coastline, call on B.C. ports, and remain in Canadian waters. Current federal legislation regarding cabotage and existing immigration policies prevent foreign-flag carriers with the resources to successfully introduce and operate B.C.-based pocket cruisers from doing so. Their ships, their knowledge, and their financial resources are required if this opportunity is to be realized. Tourism Vancouver calls on the federal government to take steps required to eliminate existing obstacles blocking the development of pocket cruisers, which will further distribute visitor dollars to B.C. coastal communities.

The B.C. ferry system is another essential component of the province's tourism transportation grid. The ferries allow those who don't have the time for an extended coastal cruise to nevertheless enjoy the views and attractions accessible by water, including our province's capital city, Victoria.

Of concern to Tourism Vancouver is the ongoing traffic congestion problems at B.C. Ferry terminals, especially the terminals on the Trans-Canada Highway 1 at Horseshoe Bay and Nanaimo. For efficient linkages between the distribution of tourism benefits to smaller communities and wider exposure for our native culture, Tourism Vancouver believes federal government involvement with the Province of B.C. to find long-term solutions to traffic congestion at ferry terminals is definitely required.

On the environment, Canada's natural beauty is one of the strongest motivators for travel in our country. It is therefore of the utmost importance that in our efforts to better our transportation network we must be at all times cognizant of the impact of transportation on the environment.

Tourism Vancouver urges the federal government to develop a transportation management strategy with a view to ensuring that all future changes, enhancements, and improvements to our transportation network are introduced with minimal impact on the environment. We need to preserve the natural environment our visitors have come to experience, even as we are making it more accessible.

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A positive step to signal an unequivocal comment to the environment would be the early establishment of a firm timetable for the introduction of appropriate clean emission standards for transit tour buses and taxis. Though extra efforts will be required by the industry to meet this higher standard of operation, the reward will be a truly sustainable tourism industry and a quality of life our regional residents can look forward to enjoying in the years ahead.

With respect to infrastructure financing, the user pay approach of a levy on airport passengers, as was done in the case of Vancouver International Airport expansion, makes good sense in the view of current public priorities and economic realties. This approach may in fact serve as a model for the development of other needed public transportation infrastructure. The introduction of any new user pay funding mechanisms, however, must only be undertaken after full consultation with the tourism industry. Such consultation is essential for two reasons. Transportation is integral to the tourism experience, and the costs associated with transportation services can have a major impact on travel planning.

One other infrastructure funding mechanism that has an implication for the tourism industry has been identified by Vancouver's Gateway Council. Their proposal asked the federal government to consider the introduction of legislation to broaden the base of organizations authorized to issue tax-exempt bonds, such as through the addition of port authorities. The considerably reduced financing charges that would result from the availability of this type of bond would make it far easier to finance needed Canadian transportation infrastructure and place our port facilities on a more level playing field with U.S. competitors. From Tourism Vancouver's perspective, such a tax-exempt bond concept warrants further consideration.

In closing, this short brief is only a possible outline to some of the key transportation issues from the Vancouver tourism perspective. There are many transportation needs that will have to be addressed if the Canadian tourism industry is going to remain internationally competitive in the years ahead. Full involvement of the tourism industry in the planning process by all levels of government is essential if we are to find the solutions we require to meet this competitive challenge.

We'd like to thank you for the opportunity to share our views with you and to give our best wishes on your deliberations. Mr. Vallee, who is a full-time marketing staff member of Tourism Vancouver, and I are available to answer any questions. We hope to create a less confusing presentation.

The Chairman: Well, thank you, Mr. Barnett. It was a very thorough presentation, although given the length of it, we'll have a very short period of time for questions.

Mr. Keyes.

Mr. Keyes: Thank you, Mr. Chairman. I have just a couple of quick questions.

Gentlemen, thank you very much for your presentation. Mr. Barnett, it wasn't confusing at all. It was very detailed and to the point.

Some matters we've heard in the past were excluded. For example, when you speak of roads and highways in particular, one would get the impression that the only solution to the problems of congestion and pollution and the ease of travel for buses and taxis would be to build a wider highway.

Your presentation is somewhat void of suggestions that have been made in other provinces, that part of the solution to the congestion - and the locals contribute to that congestion on the highways - is to incorporate different ideas and plans, such as lanes for buses and taxis only and encouraging commuters to car-pool three and four in a car. Are these suggestions being made by you or being examined in any way?

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Mr. Barnett: I think I should preface this by saying that Tourism Vancouver is a marketing arm, and as such we don't express any expertise in those particular areas. Perhaps I would ask Paul to comment a little further on that.

Mr. Paul Vallee (Vice-President, Marketing and Member Services, Tourism Vancouver): Sure.

One of the programs we worked on recently with the Greater Vancouver Regional District was the development of what's called the ``sustainable community'', of which tourism was an aspect. It was related to the transportation issues, which the GVRD is taking a leadership role in.

In reference to the point on the environment, it's important to us that any development or any enhancement or expansion of transportation, whether it be making the highways bigger, so to speak, to add more capacity...are done with the environment in mind. We would certainly support looking at the different options that would allow for bus-only traffic or bus-only lanes or car-pooling lanes and that type of thing.

Mr. Keyes: And what's your opinion of tolling the roads in order to get the additional financing necessary to expand your highways?

Mr. Vallee: I think on the last page we address the financing aspect, and again using the example of the airport whereby the consumers or the customers who use the airport end up paying basically for the development and the enhancement of the facilities, we certainly see a similar model in place for highways.

Mr. Keyes: Thank you.

The Chairman: Thank you. Mr. Crête is next.

[Translation]

Mr. Crête: Mr. Chairman, I don't have any questions, just a comment. Your presentation very clearly shows the link between transportation and tourism and the importance of the choices we'll have to make over the next few years in this regard.

You have definitely opted for the development of the north-south connection. For the Greater Vancouver Regional District, this seems to be a fundamental choice. Earlier, we had a presentation by the Yellowhead people who seem to have a different interest in the highway. As far as you are concerned, there is a direct link between transportation and tourism, and the governments concerned will have to make rather different choices in this context.

What is your forecast in terms of the increase of tourism in Vancouver over the next 5, 10 or 15 years? What kind of increase, in percentage, do you expect and, in turn, what are your objectives?

[English]

Mr. Vallee: Thank you for the comments regarding the links between tourism and transportation. Certainly we were hoping to make that connection between those two.

Before I respond to the question regarding the future growth of tourism, it's important to note that Tourism Vancouver's mandate is primarily focused upon, obviously, the Greater Vancouver Regional District and access to and from the destination, although we work very closely with other partners, be it Tourism British Columbia, the provincial government or the Canadian Tourism Commission, in developing initiatives to bring business to the region as a whole and to the country as a whole, as far as growth is concerned.

This year in Vancouver we had a record-breaking growth as far as the tourism industry is concerned. It has been very strong. We will receive somewhere in the neighbourhood of 7.7 million visits to Vancouver in 1996. In terms of our forecast for next year, we have very strong visits on the books from the hotels, and we're looking at between a 5% and 7% increase in 1997.

Some of the factors that influence growth are related to capacity as it relates to the ability to get people to and from the destination as well as being able to house them once they're here. A number of those areas are being addressed right now. The airport is being expanded; it had been an outstanding issue with our meeting planners from the U.S. in terms of getting them through the airport in a timely fashion, getting large groups of people through.

In addition, we're looking at some additional expansion of the infrastructure. From the marketing perspective, the industry is hot in terms of Vancouver specifically as a destination, and B.C. more generally. We foresee strong growth continuing, but the growth is going to be contingent upon having the right facilities, the right infrastructure in place.

Again, it's very important for us that we're not continuing to grow without an eye to the effect that growth has on the environment and being able to manage the growth in a very careful fashion.

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The Chairman: Thank you. Mr. Gouk.

Mr. Gouk: I think one of the fundamental problems we have.... Your presentation was great, but I think there's one fundamental error. When I say ``we'' I'm speaking of British Columbians, and it applies to all the other regions as well. We're relying on a government that sits off in Ottawa in part to look after our needs.

I think the real long-term solution is to get them to stop removing the money, which we then try to get back, from our province in the first place. Let us look after our transportation needs right here with our own money.

The one area of your presentation that specifically I wanted to comment on was under passenger rail. You've noted here the dramatic growth of a private sector company, Rocky Mountaineer, which took over from VIA, as it happened. It took something that was losing its shirt and promoted it. It has not only succeeded in making money but, as you pointed out, in adding tremendous tourism benefit to Vancouver and the interior of British Columbia.

The way you've written up the following sentence with regard to VIA Rail suggests that you are in favour of their increasing their ridership and also carrying more passengers. I have a real concern with that. VIA Rail is a very heavily subsidized government organization. I fundamentally reject a government-subsidized operation competing against a private sector one. In this case, it is one that was bought from VIA Rail in the first place and now VIA is going to compete against the company it sold off with its own subsidized budget. Do you have any comment on that?

Mr. Barnett: Personally, I have no knowledge of the interplay between the various parties. I hear your concerns. I am not in a position to comment.

Are you, Paul?

Mr. Vallee: I'm not certain that it's Tourism Vancouver's position to comment on whether or not the funding of the transportation - or, if you will, the product - should be by government or by the private sector. Certainly, what we look for are opportunities to work with any partner, be it publicly financed or privately financed industry.

In fact, the chairman of the Rocky Mountaineer sits on our board of directors. I'm sure he would share some of your viewpoints on our board. Certainly a strong rail service for Vancouver and for British Columbia is essential. There is a lot of interest from our marketplace. There is a lot of interest in coming to Vancouver and taking part in that type of service.

However it's financed or whoever puts it together, as long as they have a strong marketing orientation and a business sense we would be happy to be working with them.

The Chairman: Thank you, Mr. Gouk. Thank you, Mr. Vallee and Mr. Barnett. I note that Mr. Armstrong will be presenting before us at 2 p.m. Perhaps we can further that particular discussion at that time. Thank you very much.

Mr. Barnett: Thank you. I wanted to make one last comment. I see we omitted it from our presentation. It may have been brought up by others. It's constantly being drawn to our attention at Tourism Vancouver, in regard to passengers in transit at the new airport, that they have to go through a double whammy with the customs.

I see that you're nodding your heads. I would assume you are aware of it.

Mr. Keyes: Yes. In fact, the federal government is working with the Vancouver Airport Authority in order to streamline that process.

Mr. Barnett: Excellent. I think that's one of the most immediate things that's being constantly brought to our attention at Tourism Vancouver. Thank you.

The Chairman: Thank you.

Now, from the Greater Vancouver Gateway Council, a man who needs no introduction, Captain Norman C. Stark.

Mr. Keyes: Mr. Slideshow.

The Chairman: In his third appearance.

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Captain Norman Stark (Chairman, Greater Vancouver Gateway Council): Good morning again, Mr. Chairman and members of the committee. It's a pleasure to be back talking to you again, this time with a different hat on, as chairman of the Greater Vancouver Gateway Council.

I have with me today the secretary to the board of the council, Keith McPherson; Christine Sergent, the secretary to the gateway council; and Linda Morris, of course, with the Vancouver Port Corporation.

We also have here a few board members of the gateway council, so if there are any specific questions that I can't answer, I'd like to refer them to them.

The gateway council comprises senior executives from the major transportation interests in the gateway who are pursuing a common vision to make this gateway the gateway of choice for North America. The gateway is a system of ports, airports and their serving roads, and rail carriers that connect Canada's exporters, importers, and the tourism industry to international destinations throughout the shipping lines and airlines.

Our submission focuses on six main areas and recommends that the Government of Canada take action on each of them: infrastructure investment, infrastructure financing, foreign trade zone development, commercialization of government services, harmonization of priorities for transportation among the various departments of the Government of Canada, encouraging provinces and municipalities to give a higher priority to cargo and international transportation in their own policies and programs.

Before outlining specific recommendations, I'd like to note that the gateway council strongly endorses the three priorities that the Hon. David Anderson has set for Canada's transportation system. In fact, our submission is based on the minister's priorities and our recommendations are geared towards allowing Canadians to realize the full benefits of them.

First, we support the priority to use transportation policies and systems to improve Canada's competitiveness in international trade. The gateway handles over 25% of Canada's international maritime trade, including 60 million tonnes of western Canadian bulk exports such as coal, sulphur, grains and potash.

When Canada's international exports are competitive, our business increases. Conversely, if transportation costs, which account for one-quarter to one-third of the delivered price of many of Canada's bulk exports, are too high, then our business declines. For example, the Transportation Association of Canada reports that transportation accounts for 39% of the delivered price of coal exports. The gateway pays over $850 million in taxes each year and directly generates some 28,000 jobs. This is more than the British Columbia mining and fishing industries combined.

For example, every time a container ship docks at a gateway seaport, it generates some 3.4 person-years of direct employment. However, a loss of 1 million tonnes of potash to the port of Portland, which is 1.7% of the gateway's bulk exports, translates into a loss of 100 person-years of work.

Second, we support the minister's priority to boost tourism. The gateway handled 4.5 million international air passengers and 600,000 cruise passengers in 1994. Boosting tourism would increase business at the airport and the cruise ship facilities. The airport alone generated 15,000 person-years of employment in 1994 and paid $494 million in taxes. Every time a 747 lands from Hong Kong, it generates nearly one full person-year of employment in the gateway.

Third, we support the priority to strengthen links with the Asia-Pacific economies. Asia-Pacific trade dominates the gateway's marine foreign trade volumes, as seen from our five-year statistics, which we will leave with you today.

In fact, growth in the Asia-Pacific transportation demand promises many of the important business growth opportunities that the gateway council foresees. For example, thermal coal is projected to grow by 50 million tonnes over the next five years and another 50 million by the year 2005. Increasing beer consumption in China is projected to make the world's largest beer market by the turn of the century. This can provide great opportunities for increased sales of Canadian malting barley.

By the year 2000, almost 60% of the world's container movements are projected to be handled by the Asia-Pacific ports. Container port demand in North America is estimated to grow from $17.8 million in 1992 to $39.4 million in the year 2010.

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Last, America-Asia air passenger volumes are projected to increase from 19.3 million in 1994 to 40.4 million by the year 2005.

By the year 2005, these and other opportunities could translate into a minimum of 4,900 direct jobs of employment and an additional $150 million in taxes paid by the gateway alone. These figures do not include the growth in air cargo, the cruise ship business, automobile throughput or other air passenger traffic.

The private sector is doing its utmost to ensure that we are in a position to capitalize on the opportunities before us and at the same time maintain our business. Since the early 1990s, $1.3 billion has been invested in infrastructure, comprising $480 million at the airport and $820 million in the port, the rail, and cargo infrastructure and equipment.

We're making continued improvements in productivity, increasing investments in training and technology through programs such as the Maritime Employers' Association high-tech crane simulator, which is based very much on the same design as aircraft simulators. We are pursuing effective and concerted marketing strategies to attract new airlines and shipping lines to serve the gateway's airports and seaports. This year four major container lines are new callers at the port of Vancouver: Hanjin, Sea-Land, Maersk, and very soon, Hyundai.

However, we face some serious challenges. U.S. ports enjoy a number of financial cost advantages over the gateway seaports. Even though gateway labour costs are considerably lower, our U.S. competitors have a 15% long-term cost advantage. For every 60¢ the port of Vancouver pays in municipal fees and taxes, the port of Seattle collects $1.75 from local property owners.

In the area of tax competitiveness, the western provinces collected $213 million in taxes from Canada's national railways in 1994, primarily from fuel and property taxes. U.S. taxes on the same system would be 54% lower. For example, current fuel taxes in the west are 3¢ per litre in B.C., 9¢ per litre in Alberta, 15¢ in Saskatchewan, and 6.3¢ in Manitoba. Federal excise tax adds another 4¢ per litre on top of this.

In the contiguous U.S. states, fuel taxes vary between 0¢ and 1.5¢ per litre. Although some of the provinces are announcing fuel tax reductions and property tax reductions, our railways, ports, airports and trucking firms are still at a severe competitive disadvantage to the U.S. competition.

The policies and priorities of government also present obstacles to transportation and competitiveness, tax competitiveness being the most serious. General transportation taxation policies at all levels of government do not favour growth and job creation.

These negative-growth tax policies must be replaced with policies that favour growth. The remarkable performance of the Vancouver International Airport is an example. When the airport authority was formed, the cost of a single 747 flight at Vancouver was $8,000 higher than one in Los Angeles. This was a major deterrent to growth. Since then, the Province of B.C. has provided some relief on fuel taxes and the authority has reduced landing fees. The difference is now only $2,000 per flight.

The new services the airport has been able to attract generate new economic activity that offsets the loss of fuel tax revenues. That took priority for cargo and international passenger transportation.

Municipal land use planning is another serious deterrent to growth. No provisions are made by the gateway municipalities to connect municipal truck routes to a national highway system.

Urban encroachment on gateway port lands is another example and promises to severely hamper our ability to compete for new business. There are no alternative sites for the port of Vancouver. Just take a look up and down this coastline.

There are also serious infrastructure impediments to the gateway's operations and growth. Increasing road congestion in the Lower Mainland and anticipated growth in real traffic on the cargo rail system are serious threats to efficient cargo movement and future competitiveness. Investments in new cargo and passenger infrastructure in the gateway is essential.

Tolls may be considered to defray costs of some new infrastructures. The B.C. Trucking Association has taken the position that truckers may pay tolls on national or provincial highways but should be exempt from tolls in urban areas. In addition, tolls should be removed when the capital costs are recovered. Tax-exempt bonds may be also be considered.

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Those are some of the challenges we face as a gateway. If we are not able to overcome them, the opportunities I outlined for jobs and growth will not be realized. Moreover, the gateway market share for cargo volumes will be restricted and the promised growth and passenger market share will not materialize.

The impacts of no action are at least 4,900 person-years of employment and $150 million in taxes a year, which would be lost to foreign competitors for the new opportunities I outlined. Lack of action will also result in the loss of jobs and tax revenues from the gateway's baseline of 28,000 person-years of employment and $856 million in taxes paid annually.

In fact, we have already seen 1 million tonnes of Saskatchewan potash about to be diverted to the port of Portland, which will cost 100 person-years of employment in the gateway and the loss of approximately $3 million in taxes.

We have a number of recommendations. Our written submission does detail a list of the essential public infrastructure investments in the transportation system. We recommend that these investments be made.

Our ports are at a competitive disadvantage with the U.S. Pacific northwest. A large part of that competitive disadvantage is the cost of financing new infrastructure. We recommend that the three specific tax bond financing instruments be allied for Canada's ports and terminals engaged in international trade: one, general purpose bonds; two, special obligation revenue bonds; and three, special development bonds. Such instruments could be also employed to assist in public infrastructure investments. Details of this are included in our submission.

Part of the new Canada Customs Act is being held back because of a few unnecessary regulations. We recommend that these regulations be changed to encourage overseas business and to establish logistics, distribution and resupply for servicing the North American economy. For example, allowing full warranty servicing and repair in a bonded warehouse would create skilled jobs for Canadians and increase the gateway's container business.

As various departments of the government commercialize their services, each new fee adds to the cost of the shippers who are passing these costs on to the shipping lines. At some point, shipping lines will stop calling and Canadians will stop working. Coast guard recovery, dredging fees and Agriculture Canada fees for vessel inspection are some that we are aware of today. Although commercialization of government services on the user pay, user save basis is a positive step for service quality, the cumulative impact of these proposed service fees is effectively another tax on transportation and has the potential to divert major shipping lines into the U.S.

We recommend a number of specific criteria for cost recovery that take into account the cumulative impact on not only current business but also future business, and take into account the impact on cargo vulnerable to international competition or diversion to the U.S.

Concerning provincial and municipal priorities and policies for cargo and international passenger transportation, we recommend that the government, through its policies and programs, encourage provincial and municipal governments to give much higher priority to cargo and international passenger transportation in their taxation, land use and economic development planning programs.

For example, if a second infrastructure program is implemented, priorities should be given to cargo and international passenger transportation infrastructure. Although we recognize that the government's focus is on the renewal of the highway system, nevertheless, in the gateway there are also pressing priorities.

Although the Government of Canada's overriding goals are jobs and growth, and the transportation system is recognized as a key to trade growth, specific policies and priorities, we believe, are not quite in place in the departments of finance, revenue, tourism and trade, and supply and services to help realize these goals. If we are to compete effectively under NAFTA, we need a level playing field in taxation and regulation.

Although provincial governments have announced some measures to reduce fuel and property taxes, there is yet to be seen some action on the fuel taxes from the federal government. For example, Canadian Pacific Rail paid a total of $89.9 million in fuel taxes in 1995, and 38% of this was the federal excise tax on fuel. The remainder was levied by the seven provincial governments.

To ensure that the government can take action in the interests of Canada's trade competitiveness, we recommend that a much higher priority be given to the transportation system and the departments of finance, revenue, tourism and trade, and supply and services.

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Those are the recommendations of the gateway council, which was established jointly with the Minister of Transport in May 1984. It continues the work of its predecessor organization, the Roundtable on Transportation Through the Greater Vancouver Gateway, and the Canada/Asia Transport and Trade Forum.

It is an industry organization led and funded entirely by the industry, through contributions. The council has a board of 14 voting members, including: the CEOs of the Vancouver International Airport; the Fraser River Harbour Commission; Vancouver Port Corporation; BCMEA; BC Rail Ltd.; B.C. trucking; the grain terminal operators; the B.C. Wharf Operators' Association; senior executives from Canadian National and Canadian Pacific railways, Air Canada, Canadian Airlines; and labour representation from the Grain Workers Union.

In addition, there are five non-voting resource members from the Asia-Pacific Foundation of Canada, Transport Canada, and the prairie provinces.

In closing, we commend the Minister of Transport on his far-sighted priorities for Canada's transportation system. The gateway is ready to help realize these priorities to meet the challenges we face and to grasp the opportunities in front of us. However, we would ask that the government, as a stakeholder in the gateway, work with us. Without action by the government and working with the government, many of the recommendations we have presented cannot be realized.

I would like to thank you for your time.

The Chairman: Thank you, Captain Stark.

Mr. Keyes.

Mr. Keyes: I would just like to commend the gateway council for their usual thorough examination of the issue, and their presentation to us today. It doesn't leave too much room for questions when you're as thorough as you are, and the recommendations are there. Of course, I think some of those recommendations dovetail with some of the recommendations made to us during our examination of the Canada Marine Act as well, specifically the tax-exempt bond issue, etc.

I thank you for your input.

The Chairman: Mr. Crête.

[Translation]

Mr. Crête: Thank you for an excellent presentation. I have a small suggestion to make. It would be interesting to check with the Federation of Canadian Municipalities and see whether they consider it a priority to use the infrastructure program to develop exports. I'm not at all sure that we could reach a consensus on this idea, which I favour. I think that overall, in Canada, this might not be seen as one of the priorities for the second stage of the infrastructure program. It would therefore be useful if you, and other large ports and export centres in Canada, could make representations to that end.

Mrs. Christine Sergent (Secretary, Greater Vancouver Gateway Council): Yes, Mr. Crête, the Gateway Council will do that very shortly.

Mr. Crête: Thank you.

[English]

The Chairman: Mr. Gouk.

Mr. Gouk: Mr. Chairman, I would just echo the words of Mr. Keyes.

You've laid out your concerns very well. They do dovetail with what we've already received from you in particular, and others, through the port presentations. I think we're on the same wavelength. We've identified some areas of concern that we're all going to seriously look at, and we'll be doing so as this legislation is dealt with.

The Chairman: John.

Mr. Cummins: I'm just curious as to where you are with that South Perimeter Road.

Capt Stark: We are actually from the Deltaport container terminal. We are building a road, with the port corporation spending I think $21 million, including the overpasses. We will build the road up to Highway 17.

I know the issue with the municipality is to get a road that would follow the tracks around to join up with Highway 99. That's the East Ladner Bypass. We think that would be of big benefit to us, because then we can cross the U.S. border in 20 to 25 minutes from Deltaport.

The South Perimeter Road is another one that I think would be of big benefit to us as well. Fraser port have really taken the lead on that one by working with the municipality. That would be a benefit to us as well because we can then get onto the Trans-Canada Highway very quickly from Deltaport.

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We've been taking the lead on one, and they've been taking the lead on the other, but there's been no development, to my knowledge, on either of those. I think we were trying to get money through the infrastructure program on that one, but I don't think it's really gotten very far lately.

Mr. Cummins: Have they not backed off on the South Perimeter Road? There were about three different proposals on how they were going to get through North Delta, past Burns Bog. They just seemed to hold back. Is there any progress on that routing?

Capt Stark: No, I don't think they're making very much progress, but I would reiterate that it is an essential road, not just for Deltaport but also for Fraser port too.

The Chairman: Thank you, Mr. Cummins.

Mr. Keyes, you can have one short, final question.

Mr. Keyes: When we speak of tax-exempt bonds - and we do that in our other presentations on marine - do you have any idea what the different companies and firms that use that kind of money-raising method would be paying in taxation on those bonds?

Capt Stark: We have more slides, if you want. We can give you examples of the benefits.

Mr. Keyes: No, what I'm getting at is that I'm trying to learn what the government would lose in revenue if we were suddenly to implement tax-exempt bonds and whether that loss of revenue would be offset by the economic advantages created by the capital -

Capt Stark: Can I show you one slide?

Mr. Keyes: Sure. Why not?

The Chairman: It's an important point.

Capt Stark: Let me show you one on potash. A million tonnes of potash is going to move to the United States. The Port of Portland issued tax-exempt bonds. They issue those bonds at somewhere around 5%.

David Alsop, who is handling that potash, is with me today. He probably raises his capital at closer to 10%, so we lose 3 million tonnes. If we use an example of 3 million tonnes, the cost to the Government of Canada in tax-exempt bonds would be $600,000. The benefits are 120 person-years of direct employment, and $2.7 million more would be paid annually to the Government of Canada, so the net benefit would be at 4.5:1.

We have other examples through our economic impact model. We can run automobiles for you, grain, potash, coal, anything you want.

The Chairman: Are those examples contained within the brief you've given us?

Capt Stark: Keith.

Mr. Keith McPherson (Secretary to the Board, Greater Vancouver Gateway Council): Yes, sir. There is a supplement in the additional package.

The Chairman: Thank you very much. That will be most helpful. I appreciate the time and energy you put into this and I assure you it'll be noted.

Mr. Keyes: Thanks, Norm. I think it will make up an important part of the chairman's task force report on this particular issue.

Capt Stark: Thank you.

The Chairman: Members, we will meet back here at 12:55 p.m. The room will be secure in the meantime.

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The Chairman: I see a quorum. Welcome to the afternoon session.

I've seen you sitting in and witnessing the events today, so perhaps you can begin.

Mr. John Bakker (Past President, Transport 2000 Alberta): Mr. Tivy will start off, then I'll follow for a couple of minutes so that we can have time for questions.

The Chairman: Thank you very much, Mr. Bakker.

Mr. Robert H. Tivy (Secretary, Transport 2000 British Columbia): We thank you for the opportunity to be here. We represent, if you will, a volunteer group that's interested in all forms of transport, particularly public transport - not publicly owned but specifically public transit - and public freight transport.

I would like to comment mainly on the highway infrastructure, which is your main concern. I've studied the 1989 version of the national highway scheme put forward by the ministers of the provinces and the transport minister in Ottawa. It is probably not the latest version now.

It is quite an expensive project in total. I recognize that parts of it have been achieved since, bit by bit, but plan A at that time was $12 billion in total, and plan B was $17 billion. One highway engineer told me at one time that it could go as high as $30 billion if all problems were taken into account.

That represents a lot of money. The concern I'd like to express from the viewpoint of doing this work is that it should concentrate on just those parts of the system that really do need improvement. We should take a closer look at the urban part of the problem. Perhaps two-thirds of the delays to road traffic occur in our urban areas today, principally Vancouver, Toronto and Montreal. From earlier remarks, I realize you're conscious of this.

In Vancouver we have quite severe problems growing and we see the answer as twofold. It's not just a case of trying to build more expressways and other ways of moving vehicles or automobiles. We have to do more with respect to the true public transit, which is buses and rail alternatives such as Sky Train, West Coast Express, and so on. If the name of the game is to improve travel generally, our view is that it would be better to spend a higher proportion of infrastructure funds in those urban areas where most of the delays are occurring. The problem, of course, is that the accounting is not on the same basis. Mr. Bakker will deal with those aspects in his remarks.

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Insofar as VIA Rail passenger is concerned, it is doing better. It is doing a profitable job between Jasper and Vancouver now. It's pulling about 65% of its operating expenses from the fare box in the west on the transcontinental.

As another aspect of passenger, this morning a remark was made about the I-5 and how good a road it is to run on. My recent experience has been that in general it's good between here and Los Angeles, but if you drive from Portland to Everett, Washington, you'll find that the I-5 itself is very crowded at all times, not just during rush hours.

The result has been that the states of Oregon and Washington have collaborated with the U.S. federal government and with Amtrak to set up this daily passenger train called the Mount Baker, which operates from Portland to Vancouver. It's deemed quite successful as far as patronage goes.

The primary purpose of putting that train on was to avoid the unspeakable expenditures they would have to enter into in order to widen I-5. Amounts as high as $70 million per mile in the Seattle area were quoted. That was just for an additional two lanes.

The thing that has to be emphasized is that it is necessary to utilize other methods of transport in our urban areas. We have the same problems in Vancouver, not to the same extent perhaps, but wherever you get into property condemnation you're into one heck of a lot of money to provide transport, particularly if you're doing it by roads with an average of 1.2 occupants per vehicle.

The other thing I'd like to touch on is the freight side. It was handled very well this morning by the ports group. We subscribe to that. You must pay attention to the needs of our rail freight transportation system across the country if we're to avoid having heavy amounts of traffic diverted to the west coast. The same thing could happen in the east too.

The fact is that if we lost all or most of our boat traffic through the port of Vancouver, it would hit as many as 6,000 jobs in this area. This is a not inconsiderable amount. The one million tonnes that went to Portland affect 120 jobs, as was said this morning.

The threat is very real. The municipalities here have made a move to reduce rail taxation, which was rather high. Things like that will help. I think one of the main subjects you have to deal with - I'm sure I'm telling you what you already know - is this business of whether taxation on fuel is a legitimate user tax, which should be returned in some form or another to the infrastructure.

In principle we don't disagree with that. The problem with the excise tax portion is that as a people we pay excise taxes on everything, not just on transportation fuel. Therefore, it is incorrect to take credit for all of that portion of the taxation and say it should be used as an excuse for spending an equivalent amount of money on highways.

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I noticed in the highways report that if you put all those taxes in, they can claim that the revenues from highway users in total did equal or were greater than the proposed cost of $12 billion to $17 billion. If you take out the excise taxes, the reverse is true and there's a shortfall of $4.4 billion.

That's enough for me to say. I've taken my five minutes, and I'd like to turn it over to Mr. Bakker. We can mutually answer questions, depending upon which one of us you might designate to answer.

Mr. Bakker: I'm here to represent Transport 2000 Alberta. I'm the past president in Alberta, though I now live in B.C. I just moved here last January, and they asked me to look after this.

Our commission report on passenger transportation emphasized the matter that every link had to be economic and pay its way. This is very destructive to the total transportation system in Canada. One should look at networks. It is the networks that matter and not the individual links.

The term ``networks'' does mean there could be cross-subsidization of some form, but it also means that you have a complete network available. I hope the committee will look at the networks and interconnected networks of different modes, so that one can make a complete trip.

What we are seeing at the moment with the abandonment of many branch lines in the prairies.... Before this started, the railways removed some critical links. What is left over can only feed into one Pacific railway and not both railways, so there can be competition for a short line. This has been detrimental to the consumer. I'm not saying that short lines are bad, nor am I saying that short lines are not efficient, but I do think they should be feeding in both railway networks so that there is a chance of better competition.

The second aspect is jurisdiction. I was somewhat surprised to learn that your emphasis will be on highways initially, because highways are primarily a provincial jurisdiction. I have a fear of downloading from senior to lower government, as the provinces are doing to their municipalities. It seems to be the norm, and if you're at the bottom of the rung, you get to pay - which is the same taxpayer, by the way. I have gone into that to some extent in my brief.

The other one is allocation of taxes. Should our taxes, other than the general sales taxes, or the GST and provincial sales taxes - which we don't have in Alberta - be allocated?

The Minister of Transport, Mr. Anderson, forwarded the submission I made to him to Mr. each mode so that we understand the full cost implications of each mode. At the moment it's very easy to pinpoint one particular line in the budget that appears as a subsidy, without looking at the total picture as to all the hidden subsidies that exist.

That should go with the matter of the taxation that is occurring. For the life of me, I can't understand why railways should pay property tax on their rights of way. Now that I'm in B.C. at Sicamous, a good example is where the community lobbied hard to get the railway bridge renewed so that the houseboats could clear the bridge. Once they got that, they said it was a higher assessment because the market value of the new bridge was greater than the old bridge, so they get more revenue from it in taxes. The parallel to that is a highway bridge for which no taxes are being paid at all.

I think this type of thing has to stop in the country. There is a move afoot in B.C. where they will phase it out, which I think is a good move and a very necessary one, but it has to be done all over the country.

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The other taxes are the fuel taxes. Here we have to look at whether there should be modal purity, which I doubt, or whether we should be talking about transportation taxes. In urban areas very often rail link would be the better investment for commuter traffic. With it you use less space, have fewer pollutants, use less fuel, have less congestion and the like. That is a transportation allocation rather than a pure [Inaudible - Editor] that has to go to roads. So I personally favour transportation fuel taxes over modal purity in these taxes.

Everybody of course wants to get his hands on these taxes. There's nothing unusual about it, but if the user is going to pay, I think we should at least have transportation taxes itself.

The fourth thing I want to talk about is economic analysis versus bookkeeping. At the moment the trend is to look very much at the bottom line, at bookkeeping, and to forget the implied costs that can occur. A good example is the closure of ferries in the maritime provinces. Those ferries are part of the total transportation network. It's causing huge detours for trucks, which causes them to spend a lot more on fuel. It also causes a lot more pollution. I think we have to go back to the balance sheets. We should perhaps also look at fuel and pollution balance sheets, which I think is lacking in our analysis of any proposals.

That doesn't mean bookkeeping is not important. In other words, I'm not a believer in waste. I was of course born in the Netherlands, and the people in Holland are known for being frugal. They say that a Dutch merchant marine ship is always recognizable by the fact there are no seagulls behind it. I was educated in Scotland. It's an excellent combination, I believe, for frugality. So waste is not part of what I'm advocating.

The last thing I want to mention is that I feel the transcontinental rail line on the southern line should be restored. That requires investment in efficient equipment. I put in the brief a comparison between the Canadian and the Empire Builder in 1989, which was the last time the Canadian and the Empire Builder were running. That comparison clearly shows that as far as revenues, from passengers and everything else, were concerned, the Canadian did better. When it came to costs, it was two and a half times as expensive.

Of course, the costs have to come down. The costs for the railways have to come down, and I hope they pass it on. It will also benefit operations such as the Rocky Mountaineer, because they have very high costs and imposed costs by the railways. They have quite a number of personnel, such as trainmen, they have to carry on their trains. Perhaps their own personnel could be trained for that purpose if there is an emergency.

It is very important that costs be brought down. I think VIA is doing a much better job now than it used to, but basically they're still working with DC-3-equivalent equipment on the trains. The equipment is 40 years old, and it's high time they have capital investment and capital funding for them, so that their operating funding can be reduced to offset the inequities. At the present time they have to pay for access to the railway line and perhaps certain fuel taxes, but they also have to serve some remote areas, which are of course not economically feasible.

That really is in a nutshell what I have in the brief. The brief is far more extensive. Being a former professor, I originally thought of giving you an exam, but I thought perhaps you would not be willing to write it, so I will leave it at that.

The Chairman: Thank you, Professor Bakker. I suspect that if you gave this committee such an exam, they would all get A's. I'll turn you over to one of our star students here, Mr. Gouk.

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Mr. Gouk: Thank you, Mr. Chairman.

There have been times when we've had presentations where I have had very little to ask. In your case, I wish we had much more time. I will go over your brief. I've been quickly reading through it, ahead and back and so on, and I haven't had time to assimilate it all - but I will do that. I'll try to keep an open mind as I do it.

I have to ask you about a couple of things you commented on. First, there's this one comment that trucks are not paying their fair share. There have been a lot of comments on that. We can't have user pay until we know what the user is already paying. You've used some figures in here that I'm going to ask you to validate, if you would.

You've said that figures show that the various governments in Canada are spending $4 billion a year on highway construction over and above all revenues. The only reference we have is the word ``figures''. Could you provide us with those figures and your points of reference for coming up with that?

Mr. Bakker: Which presentation are you talking about?

Mr. Gouk: I have no idea; it's whatever this one is.

Mr. Tivy: It boils down to how much of the fuel tax you credit to the highway and how much you don't. As far as the trucks go, a number of studies in Canada and the U.S. have all come up with roughly similar conclusions - that is, heavy truckers are only paying about 45% to 50% of what they should, compared with their usage and the damage to the highway system.

The most recent specific one was a fairly thorough one done by the transportation department in Texas last year. It came up with those same sorts of conclusions.

Mr. Gouk: I'm not disputing that trucks are much harder on highways than cars, but I'd like you to supply me - or this committee - with the figures you've used. You've said ``figures show'' that governments in Canada are spending $4 billion a year more than all revenues obtained from all industry sources, including licensing fees and fuel taxes. So I would like very much to see those figures.

Mr. Tivy: I think the original source was the Royal Commission on National Passenger Transportation, which dealt quite extensively with highway costs. As I recall, the exact figure they came up with was $3.7 billion.

Mr. Gouk: I'll have to have another look at that, then, because I do have that particular one.

Mr. Tivy: There is an extensive highway supplement to that.

Mr. Gouk: The one concern I have is that we do have a rail freight problem in this country, but I don't want to solve it by creating a trucking problem as its offshoot.

Another one you have.... I'm going to skip over that one. I don't know how much time I have left, and I do have one other area in particular.

You say here that VIA Rail should not be privatized, that it would be a cynical ploy to destroy it and lose a valuable national resource.

I have difficulty with that one. My position has been quite clear: I do want VIA privatized for a number of reasons. One, it loses horrendous amounts of money. In my opinion, it runs on an incredibly poor business plan. It gets subsidized to the tune of $600,000 a day by the Canadian taxpayer and then turns around and cuts its fares in half in order to take business away from the private sector. I have a great deal of difficulty with that.

You mentioned the Rocky Mountaineer. VIA is now placed in a position where it's going to compete with the business it sold - only it gets this incredible subsidy. I wonder why the government is in the business of competing against the private sector that pays it bills.

Mr. Tivy: I can answer that. In terms of VIA competing with Rocky Mountaineer, they're not running directly on the same rails. They just have a Jasper to Vancouver service. It was reported in the press recently that this particular service was earning 150% of its out-of-pocket expenses. It's learned how to be competitive in that sense with the private one that's operating on the south line.

The private one is doing quite well. It's utilizing older equipment that they got very cheaply and that they can operate for a time that way. Now they're having to buy new equipment.

Certainly we agree that they're financially successful. We're not trying to knock that. But we say it's a niche market. By that I mean 40,000 passengers a year is only a fraction of the 600,000 a year that VIA was handling on that overall route. That includes not just B.C. mountains but also across the country.

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So that's what was dropped. How much of that niche market still remains is something that has to be examined.

Mr. Gouk: You don't think if VIA were privatized that the private sector would be capable of thus determining how many passengers it could carry at a profit and operate in accordance with good business practices?

Mr. Tivy: Experience with the private sector in that particular run I think was very disappointing. I suppose I shouldn't raise the issue of politics, but it seems to us that the previous government - that is, the Conservative government - made a deal with the western Canadian people. They had a line on the map that showed there would be a service on that south route. They arranged through a travel agent in Toronto to provide a service. They started off saying they were going to provide a really deluxe service and so on. Then they kept putting it off. The result was that we got nothing out of it. They eventually backed out altogether. It was too big a job for them to tackle in the first place, but it served the previous government's purpose to be able to convince us that we were still going to have a passenger service on the south line.

Mr. Bakker: Can I add to that? Worldwide, we are finding that passenger train operations have been subsidized generally. There are several different philosophies on that, basically whether the subsidies should go to infrastructure and the operations, then should be tied to make ends meet, or whether the infrastructure should make a profit, which is the British approach, where they're subsidizing the operations.

I made an earlier submission to the Nault task force suggesting that the infrastructure of rail should be put on the same basis as roads and that the privatization of CN should be split between operations and infrastructure. So the infrastructure would be accessible to more than one operator with the hope that the infrastructure would be amalgamated with CP so that you would get true competition on a national basis, yet eliminate duplication of lines that are parallel to each other, with no infrastructure competition.

That was ignored in the final report, and it took a year and a half before I could get even an answer to my brief. I sent the same notification to the Prime Minister and got no reply.

Other alternatives for approaching this whole thing have not been done. We are now in the stage where the infrastructure is a profit-making operation as far as rail is concerned. On the other hand, all the competing modes are in infrastructure not on a profit basis, but subsidized. It seems to me to cost, in some provinces, if you exclude amortization and capital costs....

Mr. Gouk: I don't care which way we go, whether we're subsidizing the infrastructure or subsidizing the operation: the operative word is subsidize. I agree that we should have had a better look at the concept of taking all the infrastructure, putting it under one title and then allowing appropriate operators to run on it on a cost-recovery basis. In fact, I presented that to the Liberal task force on CN. That was done before the privatization of CN, as a consideration, but they chose to go another way. I don't know enough about it to say whether or not that was ultimately the best way to go.

As long as you're subsidizing, if there were absolutely no passenger rail in this country.... Nobody even dreamt of it except VIA, that's one thing. But when you have a private sector that is able to provide it, and has demonstrated that they're capable of it, how can we possibly justify asking the private sector to invest, to make capital investment, to operate, to take the venture risk that's involved in free enterprise, to operate without a subsidy and then put a government service competing directly against it, saying, don't worry whether you make money or not - go and compete against them, and if you lose money, we'll pick up the tab? That's what we're doing with VIA.

Mr. Bakker: I don't totally agree with you, but that is to be expected sometimes. However, I do think we should have proper balance sheets for each mode. We don't have this at the present time, so the costs are not really known. If you want to eliminate subsidies, that's fine, but then do it for everybody, so that everybody pays a comparative amount.

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I also want to come back to your aspect on trucks. When it comes to trucking, there is no difference in cost as far as roads are concerned, whether that is right of way, alignment, snow clearing and the like. The difference lies in the thickness of the pavement required, because you can use four-inch pavement for automobiles and it will stand up for years, but if you want to have trucks on it you had better use a lot thicker pavement or it won't last a day. So it has to do with the extra thickness, and the maintenance costs from the wear and tear on the pavement, not the snow clearing and cleaning of the roads and things of this kind.

Mr. Gouk: Yes, I'm aware of that.

The costing analysis has to be very fine-tuned and be very realistic about this. Nor do I think you can expect that the fuel taxes should pay for local access to property. I think that's a charge to the property owner.

Are you aware at all about the situation in the United States where they have dual laning, where heavy trucks run on the right lane only and are allowed out in the other lane only for unique passing situations, and passengers run on the left lane? Yes, there's more cost because, as you say, the inside lane for the trucks is heavier built. There's a greater cost in the outlay, but maintenance-wise, having done it properly, there's very little difference in terms of the maintenance on California highways, for one.

Mr. Bakker: I'm aware of it.

Mr. Tivy: The other part of that, of course, is that your bridges and other structures have to be much more heavily constructed to handle trucks that have weights that go up to ten tonnes.

The Chairman: Thank you very much. Now we have one brief question from Mr. Keyes, and then that's our time.

Mr. Keyes: Thank you, gentlemen, for your submission. You mentioned that VIA Rail was operating with DC-3-equivalent equipment, etc. I assume you feel that VIA Rail should now purchase new equipment to operate, say, on the southern route?

Mr. Bakker: In regard to the whole equipment issue, I think it is kind of a shame that good, new equipment is built in Canada and financed for Amtrak -

Mr. Keyes: You feel they need new equipment.

Mr. Bakker: I think they need new equipment, both both in the corridor -

Mr. Keyes: Who do you think should pay for that new equipment?

Mr. Bakker: Either this should come on a lease basis, which is the way Amtrak is being supplied, by Canadian industries...but there is a back-up of government guaranteeing that amount.

Mr. Keyes: So how do you rationalize, then, government guarantees on VIA buying new equipment, when a private company like Rocky Mountaineer goes out and demonstrates to its shareholders that with proper business practices they can spend some $13 million in capital expenditures in upgrading their cars and all the rest of it and not have to rely on the federal government or the government to back them up on their loans?

Mr. Tivy: They have a niche market. That's one thing. A niche market is easier to operate in than some of the other markets that we still think should be supplied with rail transport.

Mr. Keyes: Do you think, then, it's fair that VIA Rail, which is government subsidized, should compete in that - okay, let's call it a niche market - on a level playing field with a private company on the -

Mr. Tivy: We feel they're serving different markets; in other words, they're serving a slow train, day train, viewing market, and VIA would be operating a transcontinental service right across the country.

You see, there are still a couple of hundred thousand passengers out there who disappeared altogether. A lot of them are people from Europe, Australia and Asia and so on, who are used to travelling by train, and we feel they would come to the country to see it that way. While they might not fully cover the train expenses with their fares, the tourist people believe there would be a spin-off. They claim - and we've talked to them here and elsewhere - that the average tourist stays for three days in Canada and spends about $200 a day, regardless of how they come.

Mr. Keyes: I'm just trying to demonstrate the imbalance there. How can we hope for the private sector to do any - -

Mr. Bakker: I can see that, but there is an imbalance between modes and I think - -

Mr. Keyes: No, even within the mode.

Mr. Bakker: No, within the mode...but that can make it profitable between Calgary and Vancouver in either one of the lines, whoever operates it. That's not the problem. The problem is to provide a national service, coast to coast. That's a totally different market.

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I can't get on to the Rocky Mountaineer where I live, which is near Salmon Arm, because the train doesn't stop there. The Rocky Mountaineer is an irrelevant service as far as I'm concerned. So it's a different market, different operation, different type of thing. But the subsidy I would suggest has to be rationalized on the basis that we are correcting the subsidies that are occurring to other modes so that therefore they become equal.

The Chairman: Thank you very much, gentlemen. I note the speed with which Mr. Armstrong wrote down Salmon Arm, so perhaps in the future you will be able to take the Rocky Mountaineer.

Mr. Bakker: I've used the Rocky Mountaineer, but I have not been able to use it from Salmon Arm.

The Chairman: Thank you very much.

Mr. Keyes: Did you enjoy the trip?

Mr. Bakker: Yes, they provided a very good service and I will say nothing bad about it.

The Chairman: Good.

Mr. Bakker: I would like to reduce their costs too.

The Chairman: As would they, I suspect.

I will now invite one of our committee members, Mayor John Northey, to the table.

An voice: This looks vaguely familiar.

The Chairman: You must have a very well-managed city, free of problems.

Also with us is Mayor Bose from Surrey, whom we met yesterday, and the newcomer is Mayor John Hobberlin from the great city of Blaine, Washington, the border point just south of Vancouver.

Welcome, gentlemen.

Mayor Northey, you know the routine. I should say one thing, Mayor Northey. We are on a somewhat tighter schedule today because of our need to head east for hearings tomorrow on the prairies. You have a very substantial brief that, if it is read from cover to cover, will probably completely occupy the time we have available for this discussion.

Mr. John Northey (Chairperson, Strategic Planning Committee, Greater Vancouver Regional District): Chair, we will be brief and I certainly will highlight the material. I will lead off.

Good afternoon. We are here representing the Greater Vancouver Regional District, which, as you know from yesterday, is the joint local government of 20-odd municipalities in the Greater Vancouver area.

With me is Mayor Bob Bose, whom you met yesterday, and Mayor John Hobberlin from Blaine. They will provide you some information on our relationships with the Cascadia group and the very important north-south links that we have for transportation, trade and tourism.

I've also submitted to you today copies of our official growth management strategy, which you should have before you, the ``Livable Region Strategic Plan'' and the economic opportunities map, which we've also produced within the regional district.

I should note in regard to the liveable region plan, that it's a result of the five-year process of consultation between our governments and residents of the region. It's a vision for the next 25 years and thereafter. It's a guide for the development industry and its investment of over $3 billion a year in construction projects and to accommodate the pretty close to 50,000 additional residents a year who come into Vancouver.

An important thing to note, one of the points we wanted to raise for you today, is that these efforts are comprehensive in that we have planned for both land use and transportation together. This relationship is extremely important, and it's in the nature of the policies you see in the document that one builds upon the other; they're both essential. They rely on four key strategies in order to accommodate in the order of 1.5 million more people into this area over the next 25 years.

First, we've identified the green zone, an area that will not be developed no matter what. That actually, apart from the agricultural land reserve, includes something in the order of 60% of land that is otherwise developable. The 20 municipalities have agreed that shall stay green.

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Second, it identifies an area to create a more compact region. And if you'll note, there are shown the parts of the region that will take the bulk of growth.

We also have indicated that we must build more complete communities. They're built around town centres or regional town centres and municipal centres, which is the third point, and it's related to the fourth point. The fourth principle is that they're all linked by transit.

The significance of those four points is that again they work comprehensively and they are all in support of the kinds of things and I believe the kind of study that your committee is about to undertake.

The GVRD has some formal policy statements concerning transportation, trade and tourism and they are represented in the plan before you and in an earlier document, which is called ``Creating Our Future''. Specifically, we've stated that the GVRD supports economic growth as a regional objective but not an assumption. In other words, we know we have to work to achieve it.

We will help to create a supportive and globally competitive climate for economic change and growth, with particular attention to transportation, tourism and export-oriented business services and technology-based manufactured products. When we talk about those, they're on the back of the map that you've been provided.

We've actually indicated the kinds of sectors that we anticipate will be the most significant within our area, including agriculture and food processing, knowledge-based industries, film industries, tourism, environmental technologies, international business centres, aerospace, and the personal services and so on that come out of our regional town centres.

Those in particular are extremely dependent. As you'll notice, the three subjects that you have of your forthcoming investigations on transportation, trade and tourism figure very strongly in those sectors that we've identified as key growth areas within the region.

I'll make a note on tourism, in passing. In 1995 over 7 million tourists visited our region. The Alaska cruise ship business has doubled over the 10 years since Expo '86. The open skies treaty has been a boon to the air travel sector, and the change in operations at Vancouver International Airport has helped us realize that.

The regional district also has a special agreement with Tourism Vancouver on the links between the land use and the transportation policies that we're attempting to achieve within the region and their impact on tourism.

We've spent the last couple of days dealing with the port and obviously, as we have discussed, both our seaports are already of global significance. But the land transportation linking these ports to the rest of Canada, and certainly even within the region, are underdeveloped. The real problem is with our railway infrastructure, with its inadequate crossings of the Fraser River and Burrard Inlet, and a major investment in infrastructure upgrading should be a top priority.

Therefore, in your comprehensive study on linkages and infrastructure, perhaps we would note that we would like to participate with you in this, both on national and regional improvements needed to serve not only metropolitan Vancouver but our hinterland, if you will, in western Canada. These choke points, for example, need to be identified very early and we address them specifically. Mayor Toporowski yesterday mentioned one of those, which was that specific bridge that carries over 40% of the rail traffic actually coming to not only the port of Vancouver but the Fraser port. That has been a major problem in our region for a great number of years, and I think Mayor Bose will be speaking to that more specifically.

We also, with you, have an intense interest in how we finance all this. I think we first have to identify where those choke points are, but how do we afford it?

We are extremely interested, and as a regional district we are on record as saying we must be very receptive to transportation and transit-based public-private partnerships, and in effect we are supporters of the concept. But we, along with you, must know more about it and the way it is being treated around the world.

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We also agree that the approach must be comprehensive. In fact, just as our port is, they're all interrelated. For example, one of the things that's helped the cruise ship travel take off, in effect, is the open skies agreement, because it has allowed tourism packages to be put together that relate to both.

All this has to take into account that our specific concern is that we are a land-scarce region. It has many choke points within it just because of the way it's set up with river crossings. And our ports, which are key and which we've been discussing the last couple of days, have extremely limited back-up areas. That's again why in our delegations and in our comments the last couple of days we have emphasized the need for very strong port and municipal interrelationships, because of the need to ensure that we treat the back-up areas to the ports both with infrastructure and space together.

I'll hand this over now to Mayor Bose, who will talk to you about Cascadia.

Mr. Bob Bose (Co-Chair, Cascadia Transportation and Trade Task Force, Greater Vancouver Regional District): Thank you very much, John. Good afternoon, Mr. Chairman and members of the committee.

It's a pleasure to be here again today and wearing a slightly different cap to speak on the topic of transportation, trade and tourism within what we have come to describe as the Cascadia corridor, the I-5 corridor, which is the real focus of much of our discussions and the reason that my colleague, Colonel John Hobberlin, the mayor of Blaine, is here.

I have had a long-standing interest in transportation issues and was at one time the chair of the transit committee of the Greater Vancouver Regional District when it was in that business. That goes back to 1982. Since that time I've served on the board and do serve on the board of B.C. Transit and I'm a member of the Greater Vancouver Transit Commission. So we've had a long-standing interest in transportation issues and a particular interest in land use, which is so closely related to it.

Today I want to really talk about the border crossing issues, the initiatives we've been pursuing collectively along the I-5 corridor. I do that in my capacity as co-chair of what is known as the border working group of the transportation and trade task force. My co-chair is Mayor Hobberlin.

The Cascadia task force is a strategic alliance of local and regional governments in British Columbia, Washington and Oregon. The task force was established some five years ago to help coordinate the initiatives to promote sustainable development of our bioregion, which spans these jurisdictions.

We pursued a variety of initiatives aimed at improving trade, reducing cross border impediments to trade and travel, and the joint promotion of tourism. On a more specific topic, we have been very actively involved in the reinstatement of the Amtrak passenger service between Vancouver and points south.

In 1994 I represented the regional district, that is the GVRD, at the U.S. government hearings under the President's task force on cross-border issues. That was a first opportunity for us to make presentations in that way. Today it's a great pleasure that Mayor Hobberlin is returning the favour by appearing before this committee. Mayor Hobberlin is going to provide you with more specific details about the actual border crossing issues. I look forward to his submission on that.

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The GVRD participated in a two-year project to restore Amtrak service between Seattle and Vancouver. That service has now been in place for over a year and runs on a daily basis, one round trip per day. It's been incredibly successful as a result of cooperation between CN, Burlington Northern, Transport Canada and the Washington state department of transport. We're looking forward, frankly, to its expansion and the putting in place of another train running counterflow to the current run from Seattle, linking up to all points south and going as far as Los Angeles.

Amtrak is studying the feasibility of a second train. The State of Washington has committed some $23 million to rail trackage upgrades and will be purchasing rolling stock to expand the Amtrak service, with Burlington Northern and Amtrak also contributing almost an equivalent amount to that. The hope is to increase capacity along that corridor, because clearly it's understood that it's a very attractive alternative to expanding the I-5 corridor, which would be a multi-billion dollar project.

Recognizing that the corridor is becoming plugged and some alternate means of moving people and goods must be undertaken, there has been a considerable amount of work done.

The Province of British Columbia has co-funded the high-speed rail corridor study, looking at long-term solutions to today's congestion problems along the I-5 corridor, and there are new alignment options being considered to bypass cities such as White Rock and a village in my city of Crescent Beach to improve efficiency and speed.

I would add to this that a major impetus behind this initiative is to move goods more efficiently. One of the side benefits, of course, would be to improve travel times between Seattle and Vancouver on what would be a high-speed rail corridor. This is a very exciting initiative and we look forward to progress in that area.

Many of the facilities along the line currently are real impediments. Mayor Northey made reference to the rail bridge across the Fraser River, which is really a horror story of long standing. We're looking forward to a real resolution to that problem and its proper replacement to a better quality service.

The Greater Vancouver Regional District and our member municipalities are committed to the regional framework under the liveable region strategic plan, and we look forward to working in partnership with other governments. I particularly want to highlight our work with governments south of the border, whether it is county government or whether it's my colleagues in the cities of Blaine, Bellingham, Portland or Seattle. All of us are in dialogue amongst ourselves. I think what you see here is really a new phenomenon of cities talking to cities dealing with common problems.

I want to thank you very much for the opportunity to make those few remarks, and I invite Mayor Hobberlin to expand on the specific issues that he is going to address.

Mr. John Hobberlin (Mayor of Blaine, Washington, U.S.A.): Thank you, Mayor Bose. I appreciate the opportunity to appear before your committee and I bring you greetings from the city of Blaine. It's the gateway to the Pacific northwest, and approximately 11 million souls pass our border every year, depending on the year, but in the last three years around 4 million to 6 million rubber-tire vehicles went over the border.

As Mayor Bose indicated, the Cascadia task force is a strategic alliance from the Lower Mainland of British Columbia to the Oregon's Willamette Valley. They're working on common trade, transportation, tourism and urbanization issues.

We're also developing a feasibility study to bring the summer Olympic Games of the year 2008 to Seattle, with the sports and cultural events encompassing the area from Vancouver to Portland. Based on the results of the 1996 Atlanta Games and the future plans for the 2000 games in Sydney, Australia, we can expect more public sector financial participation in the games, including federal government support for high-speed passenger rail that would be linking the Cascadia corridor as well as border crossing improvements. We are hopeful that with the active participation by Vancouver, B.C., sports and government leaders, our Cascadia bid for the games will be enhanced, and they're certainly moving in this particular area.

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Mayor Bose discussed the Washington state Amtrak train service, which we're very proud of. I wanted to highlight some of the new border initiatives that we would like to engage your committee in.

One would be the Blaine-Douglas combined crossing, which is the third most active crossing between the United States and Canada and is rapidly ascending into the number one border crossing. We have been experiencing a 14% annual increase in truck traffic in the last few years. With open skies and the increased air cargo at Vancouver's International Airport, we expect a huge surge in commercial warehousing in Blaine and the Lower Mainland.

Through the efforts of our state's congressional delegation, $1.5 million was included in a 1997 congressional transportation appropriations bill for Blaine border improvements. The funds will match a 1996 $2.7 million Washington state department of transportation appropriation and will be used to enhance commercial clearances at the Pacific highway truck/bus crossing.

A little on PACE: Our congressional delegation is also directing the federal agency that operates the PACE dedicated commuter lane program to continue and expand the program to match Revenue Canada CANPASS/PACE initiatives.

Our Cascadia working group, a binational public and private sector group that I co-chair with Mayor Bose, is exploring a cross-border business plan to fund border facilities through the auspices of the shared border accord; border approach routes, particularly those that would provide a more direct route between Interstate 5 and your Trans-Canada and Coquihalla highways; and also the guide meridian from the Lynden-Aldergrove crossing - which you might not be familiar with - to the Interstate 5. If you do, you're a very informed group.

The Chairman: I lived a mile away from it for two years.

Mr. Hobberlin: Is that right? Sometimes I don't know where it is, so you've done a good job.

We believe we could finance some of these improvements locally through a combination of PACE and CANPASS revenues dedicated nationally for global improvements; a commercial PACE program that shipping, customs brokers, and trucking firms can pay into; and a retention locally of a higher percent of gas taxes collected at border communities such as Blaine. Blaine in the last three years has paid in over $33 million of gas taxes to the State of Washington and has returned to our use $338,000.

My favourite analogy is that we're a cash cow, but the state continues to not feed the dairy and so we have difficulties in this. But it is a real source of moneys that can be used for our mutual benefit.

If Ottawa and Washington, D.C., could make our Cascadia corridor a pilot project for the implementation of the shared border accord and provide some initial federal funding, we believe we could develop these local public and private funding sources as a partnership to finance common infrastructure, facilities, staffing and technological improvements for trade, tourism and transportation. We intend to brief Transport Canada Minister Anderson on this initiative when he comes to Seattle on November 13, 1996.

We're also working on a paper for a proposed binational transportation symposium under discussion for January 10, 1997.

I'd like to thank you and I would be delighted to have myself or Bruce Agnew from the Discovery Institute answer any questions you might have.

Mr. Gouk: I have just one question. I'm familiar with various aspects of Cascadia, including the ultimate proposal as well.

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Seeing as we have two mayors here, I have a question that's been brought up here at this committee already. You're proposing enhanced rail infrastructure through your areas and a bigger and better bridge at the Fraser, which is certainly long overdue. It's been brought up that every time the rail company does that, their property taxes correspondingly go up.

I'd like to know from the two mayors what your position is on municipal taxation of rail properties, particularly if they take an older bridge that has one value and replace it with a new one that has significantly higher value. Would that mean more revenues for your municipalities or would you be working to waive some of those fees to encourage the railways to take that initiative?

Mr. Northey: The question is highly timely, because we're dealing with a provincial initiative to avoid the kind of overtaxation problem you outlined. Under Bill 55, the taxes that municipalities can levy on railroads and companion utilities have been substantially reduced.

Mr. Gouk: I'm aware of the provincial initiative, but I'm also aware of a backlash from numerous municipalities. That's the position I'd like to clarify from the municipal perspective.

Mr. Northey: Many municipalities that are substantially affected - there are perhaps a dozen in the province that may well be - are naturally most upset.

My understanding is that the province is standing firm since we have to do this. Personally I support what the province is doing. I think we need to do that. Other municipalities throughout the province may have a different point of view. The important thing is that the province is standing firm on this matter. Taxation on our railways, for all the reasons we're aware of, must be brought into line with the rest of the country. Bridges, I understand, are excluded.

Mr. Bose: I would like to simply add that there needs to be a principal base for generating revenues from the railroads. We talked about this with respect to the port. The cities, in fact, have to work in partnership with the railroads. Some kind of rational approach to taxation and revenue streamed to the cities needs to exist.

I would also argue that a lot of the efficiencies that railroads are trying to deal with might well be provided by rationalizing the structure of the railroads and removing redundancies and inefficiencies along the way.

The cities, frankly, are an important player in that exercise. One only needs to refer to the port of Oakland, where the two southern railroads merged to give up trackage to the benefit of the city of Oakland. This resulted in a common rail corridor that was more efficient and handled the large train units they needed to access the port. In the end, everybody won.

We have some major organizational problems in our region. There needs to be some serious work on that to make sure the railroads become competitive, because the Canadian railroads are not competitive with their U.S. counterparts right now, based on the port railroads.

We need to get on with this business and not to resolve the inefficiencies of the railroads problems on the backs of local taxpayers who should be receiving some revenue in order to fulfil their obligations to the railroad.

That's my speech on this topic.

Mr. Northey: Perhaps I can add some clarification to that, Mr. Chairman.

The current proposals, which the province is pressing forward and which I said I agree with, actually put the railroads in the same category as any other utility. They still pay full taxes, but it's just that the rate is reduced to the point that they're comparable to other utilities.

[Translation]

Mr. Crête: I really like the quotation at the beginning of the document on the Cascadia project:

[English]

Bi-national regions are emerging as key environmental and economic units throughout the world.

[Translation]

The author is Senator Mark Hatfield.

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It's a very beautiful sentence about a partnership between two nations and it's very meaningful. Incidentally, it's an issue we raised with the Tourism Vancouver representatives. The way I see it, it shows that not only the Greater Vancouver region, but British Columbia as a whole, has opted for the development of the north-south connection.

I would like you to give me a few more details about the problems you encounter, either at the structural level, or with regard to the cost, to implement each of the stages included in your plan. Is it only the sizeable cost of the project which is at issue, as in the case of bridges, or will you have to deal with other impediments?

You also mentioned a pilot project, where your region would serve as a model in terms of managing border areas. What specific problems do you encounter with that project?

[English]

Mr. Bose: Perhaps I could start. John may have some comments he would like to offer here too.

Surrey is the site of two major border crossings, both the Peach Arch crossing and Pacific Highway. There is a need to do some transportation improvements on the Canadian side, particularly for Pacific Highway. My city has been engaged for a period of over 10 years in planning for an improved separation of truck and commercial traffic from private automobiles, involving parallel road systems dedicated to commercial traffic, and the need to make those general improvements to the border facilities.

The city has in fact done both the planning for these improved facilities and invested in the acquisition of rights of way in anticipation of a resolution to this problem. However, when it comes to implementing the new infrastructure, the province and the federal government have not resolved their respective interests. The city has not been able to gain the interest, it seems to me, of the federal government in taking on its responsibilities for infrastructure improvement.

So we do the planning, we do the community consultation, we buy the rights of way, but we're not going to build the roads. So that's in essence where we're at.

Another area of concern is that there is insufficient coordination across the border in terms of land use decisions and the preservation of rights of way. So we have both the rights of way for the possible relocation of the Peach Arch facility to a more appropriate alignment away from the water and the need to secure a new right of way for rail transport. There needs to be a really strong role by the two national governments, with the cooperation of the states and provinces and the cooperation of our respective cities in achieving some kind of rational approach.

[Translation]

Mr. Crête: You have not indicated - or may be I didn't see it - the overall cost of the project, the investment that could be required. Have any cost projections been made?

[English]

Mr. Bose: Yes, the one initiative my city has been pursuing above the land costs would be an investment of $600,000. This would be for actually building the road that's necessary to separate private automobiles from commercial traffic.

Depending on the Canadian dollar exchange rate, we sometimes get a lot of private automobile movement going south, which is competing with the commercial vehicles. There is genuine conflict that is difficult to manage. So a relatively minor expenditure on the Canadian side would at least provide that part of the infrastructure.

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Mr. Hobberlin: I just might add a short addendum to what Bob is indicating from the City of Blaine's aspect and also from Whatcom County, which we're involved in. A lot of the difficulty we have with the infrastructure is the lack of coordination. Over the last five years there's been a large step forward in relation to bringing the groups together under an umbrella to meet the needs of the infrastucture.

We have political concerns with the state transportation department as to why the infrastructure leading into our border is not state of the art. It is obviously impeding continued growth of commerce. If you can move $100 million worth of materials through in 20% less time, it's of value to the entire infrastructure.

I have difficulties with the State of Washington on this, as to why, after years and years, we still look as though we're in the middle of Arkansas or somewhere - and this is not derogatory toward President Clinton. It's something we're working on very wholeheartedly with Cascadia, with the cross-border situation, attempting to get more concerted efforts into our particular areas. We are meeting with success.

Mr. Bose: I have just one other point. We're very aware of the fact that we now export to the United States a very substantial value in vegetables such as lettuce and celery, those kinds of commodities. They are processed here in British Columbia, in my city particularly, and they need to be delivered across the border - on-time delivery. The uncertainty for those shippers to get across the border with a perishable commodity is very significant. They never know whether they're going to run into border problems.

So there is a real move toward pre-clearance using modern technology and removing congestion at the border so that these people can move their perishable products across into Washington state and much further south.

Lettuce from my city goes to California because of its high quality, and all kinds of other commodities as well.

Mr. Hobberlin: And the reverse....

Mr. Bose: Yes, the reverse in the winter, John, thank you.

The Chairman: A complementary flow.

I'm actually very interested in this. This is a problem that has been identified right across the country in terms of the speed with which one can do the border pre-clearances that move goods both ways.

Are you aware of companion organizations like yours with this cross-border involvement in other parts of the country, Arkansas notwithstanding?

Mr. Bose: Bruce could speak to this, I'm sure.

Mr. Bruce Agnew (Canada Project Director, Discovery Institute): There is an organization we belong to called the Can-Am Border Trade Alliance. It includes the Rocky Mountain trade quarter and the Pacific northwest economic region, which is Washington, Alberta, Montana, Idaho, the bridge authorities in Detroit-Windsor, the New York-Niagara, Ontario, frontier and some groups in the Vermont area.

It's a two-year-old organization but it's been very successful in fighting proposed border fees that came out of both Congress and the Administration to help finance our deficit, which we felt was counter-productive to trade and tourism. It's provided a strong voice for the northern border. The political situation, as you may know, with the U.S.-Mexican relationship, and very contentious immigration issues, has essentially exacerbated our border problems. There has been a shift in personnel and major new investment in immigration agents and infrastructure on the southern border to stop the flow of illegal immigration.

That has caused us to lose positions in the northern border. Therefore, the lines have increased. Even though cross-border shopping isn't as strong as it has been, commercial traffic, as Mayor Hobberlin indicated, has increased dramatically. With open skies and the growth in the freight patterns, it's going to continue to worsen. So the Can-Am Border Trade Alliance has been our voice in Washington and Ottawa.

The Chairman: Could you forward information on that alliance to the committee?

Mr. Agnew: Absolutely.

.1710

The Chairman: Thank you very much. I appreciate your presence here and the amount of time you've taken to provide us with the information.

Mr. Hobberlin: I thank you personally very much, because I'm sure all the information must go into volumes that you have to internalize. But I'm sure you gentlemen have the capabilities.

The Chairman: As a student here in the 1970s, I have many fond memories of certain parts of Blaine.

Some hon. members: Oh, oh!

Mr. Hobberlin: I'm sure that would be the churches you're more familiar with.

The Chairman: Absolutely.

Mr. Hobberlin: The city has changed. It's a city in transition. I've only been up here for three years. I came from California and retired. Quite a few changes are being made in Blaine. We're really excited that things are occurring. Along with the commercial aspect, I think we're going to be -

The Chairman: Sir, thanks very much.

From the Greater Canadian Railtour Company, now stopping in Salmon Arm as well as other locations, I welcome Peter Armstrong.

Mr. Peter Armstrong (President and Chief Executive Officer, Great Canadian Railtour Company Ltd.): Mr. Chairman, thank you very much for providing me with the opportunity to speak.

I'd like to just take one moment and first compliment the American friends who were here on the success of the Amtrak service from Seattle to Vancouver. I see the train arrive and depart every day. The load volume is very impressive. They've done a very good job commercializing that venture.

I'd also like to take the opportunity to introduce a partner of mine, Mike Phillips, a senior vice-president with the Working Opportunity Fund. He's also on our board of directors and a partner in our venture. He's one of our largest shareholders. He represents over 20,000 investors who have invested in the Working Opportunity Fund. They have a vital interest in the topics we're discussing today.

I'm pleased to be with you today to assist the committee in its important deliberations on the subject of how our tourism system can serve and support and promote domestic and international tourism. I'm especially pleased because the experience of our company over the past seven years provides an example of what can be achieved by the private sector through a combination of hard work, innovation and a strong marketing effort.

In fact, the Rocky Mountaineer demonstrates both that commercialization can work and tourism and trade are most effectively developed by entrepreneurial efforts.

We purchased the rights to operate the Rocky Mountaineer from VIA Rail Canada Inc. in 1990, when the ``Rocky Mountain by Daylight'' service had only recently been initiated. It was losing money at the time, but we believed in the dream of developing a unique rail tourism experience, and we were determined to make this experiment succeed - without any subsidy from the taxpayer. We've been encouraged by the support the federal government has provided to pursue this dream.

During our first few years of operation, there were significant challenges and more financial losses. However, our marketing efforts, combined with the dedication of our entrepreneurial team of employees, eventually paid off. Our company has increased the number of passengers we carry by almost 30% per annum. We can now say, with some confidence and pride, that our small company has had a significant and positive impact on the economy of our region as well as for the Canadian trade and tourism industries.

Two years ago, at the end of the 1994 operating season, when we had turned the corner toward profitability, an independent review of our operations reported that our company impacted on the employment of almost 500 people. We generated almost $6 million in taxes and created almost $7 million in imports. The total economic impact of our company was almost $24 million.

Since more than 75% of the excursion visitors who enjoy our service come from outside Canada, these economic measures are based largely on direct injections of income from outside the country. As a result, our company has had a positive impact on international exports, on our Canadian balance of trade, and particularly on the balance of trade in the tourism accounts.

.1715

These numbers I have cited are from a 1994 study, based upon our company's success up to that point in time. In that year we carried 25,000 passengers, which was a huge increase from the 7,200 passenger reservations we took over when we acquired the service from VIA Rail.

During the past two years, we have worked very hard to continue our steady growth. This season, which is now drawing to a close, we will have carried more than 43,000 passengers on board the Rocky Mountaineer. The overall economic impacts to the communities in which we operate and the benefits for Canadian trade and tourism continue to grow with our company.

A few weeks ago, on September 12, 1996, our current record season was highlighted by the Rocky Mountaineer pulling out of Vancouver's Pacific Central Station with a 37-car train filled with over 1,100 paying customers, the longest passenger train in Canadian history.

If members of the committee sense that I'm more than a little enthusiastic about the success of our company today, you're absolutely correct. In fact, one needs only to consider how far we've come in such a short period of time to understand my pride in the collective achievement of a relatively small group of dedicated employees.

During a period when downsizing and a continued dependence on taxpayer support is the norm in the passenger rail transportation sector, we've shown that the national dream can be kept alive without government subsidy. The overwhelming lesson of this experiment is that commercialization works. Indeed, it is our view that further commercialization of passenger rail service should be encouraged wherever possible.

In this regard, we have paid close attention to statements of policy from the federal government. In fact, the millions of dollars in investment that we and our partners have made in our business have been based on those statements.

For example, when the Prime Minister spoke to the tourism industry here in Vancouver in October 1994, he addressed the serious balance of payments deficit in tourism and challenged the entire industry to create jobs and investment, to show some leadership in designing and delivering innovative marketing programs. We responded by vigorously pursuing these objectives.

We also believe, and strongly support, the statement made by the former Transport Minister, the Hon. Douglas Young, that the Canadian transportation industry must be able to survive in a new environment where subsidies will be the exception, not the rule.

We listened carefully to such statements as well as those made by the current transport minister, the Hon. David Anderson, and have financed and operated our business in the belief that the government is committed to these principles.

We have met the government's challenge. We have privatized the service and have dramatically increased the business and economic benefits to Canada, all without financial support from taxpayers. By any measurement, the experiment has been a success.

However, members of the committee should be aware that it could be all at risk. This is because of recent announcements from VIA Rail Canada that threaten our company's continued viability. This crown corporation, subsidized by Canadian taxpayers in 1995 by almost $300 million, is now proposing to double its service on the portion of their transcontinental route where we operate the Rocky Mountaineer.

VIA Rail operates more than 6,200 miles of rail services across Canada, but they want to expand the service only along the 500 miles of track between Vancouver and Jasper. In fact, the Vancouver-Jasper section of VIA Rail's operation is the sole part of the crown corporation's passenger service where there is a private sector operator already in business.

We've worked hard to develop the tourism potential of the route through the western mountains. I've already told you about the growth in numbers of passengers we carry. Our marketing efforts have increased the demand to the point where we are now willing to invest more capital in our business. In April of this year we announced to the tourism industry that we will be adding a second train to our routes and an additional 54 departures per season. This will effectively double the Rocky Mountaineer's frequency for the upcoming 1997 season.

We then went to VIA Rail and in June of this year purchased 25 of their passenger cars, which are now being refurbished by our staff in Kamloops. Yet it is only on our small portion of VIA Rail's transcontinental route that the crown corporation is now proposing to expand its seat capacity. They want to do it solely during our operating season.

.1720

What is even more disturbing is that after we announced our intention to double our capacity and purchase VIA Rail passenger cars, they have proposed a doubling of their capacity on our route. This would mean an additional 50,000 seats next year. Considering that it has taken us seven years to build this market to less than that volume, members of the committee will understand why we are so gravely concerned about VIA's plans.

If allowed to proceed, our business will be seriously jeopardized by the actions of this crown corporation. We simply cannot compete with a crown corporation that is subsidized in numerous ways by the federal government. In fact, in 1994 Canadian taxpayers directly subsidized every passenger travelling on VIA's western transcontinental route in the amount of $318.

Over the years, VIA Rail's losses have totalled many billions of dollars. Taxpayers have been repeatedly called upon to pay for these losses, which have significantly increased the burden of Canada's national debt.

The recent commitment to eliminate waste on the passenger rail service is commendable. However, even according to VIA's most recent corporate plan, the crown corporation will be assessing almost another billion dollars from taxpayers between 1996 and the year 2000.

In light of these past and continuing losses, we believe that VIA Rail should be required to remain tightly focused on limiting its activities to its core business, not expanding into the one and only area where this crown corporation will be competing head to head with the private sector.

We are especially troubled by VIA Rail's proposal to compete against our company as a tourism carrier. VIA's mandate is to continue to concentrate on intercity passenger service, not as a tourism operator. Members of the committee will therefore understand our very serious concern when a subsidized crown corporation proposes to develop a parallel service on our operating route and only during our operating season.

Imagine the confusion in the marketplace that would result from such a move. The very existence of our small but growing company will clearly be put into question. Also, the spirit of our 1990 purchase agreement to take over the Rocky Mountaineer service would be violated.

It is clear that VIA Rail's proposal is contrary to government policy. In fact, when he was questioned specifically about the future of the Rocky Mountaineer, former Transport Minister Doug Young made the following statement to this very committee in 1994:

...I can't emphasize too much that we're not in the business of putting at risk anybody who's taken on risk in the private sector to try to help us out in the railroad industry.

Our company has invested and operated in a manner that is both consistent with public policy and the direction we have received from government. We've been pleased by the encouragement we've received from the Minister of Transport, the Hon. David Anderson, and his predecessors. We plan to continue to build our company and to steadfastly invest in a way that helps to grow the tourism potential of the Rocky Mountaineer service.

We have established a strong network of supporters across the country and around the globe. We are bolstered as well by tremendous community support in British Columbia and Alberta, where we have become an important employer.

We also have an ambitious $13 million capital plan that includes the refurbishing of all railcars purchased earlier this year from VIA Rail, the construction of new dome cars and the development of an operations centre in Kamloops.

However, the confidence of our shareholders has been badly shaken by the prospect of increased subsidized competition on our route by VIA Rail. As a result, our future plans are clearly at risk. We don't want a monopoly. In fact, we're fully prepared to work with VIA as a complementary passenger rail service, but we cannot compete directly with a subsidized crown corporation as a tourism operator. We are not equal competitors.

To put this into context, VIA Rail could lose 50% of its passenger volume and still remain in business because of government support. However, if we lost 15% of our planned growth to VIA, our future would be in jeopardy.

The Minister of Transport has confirmed that VIA Rail's proposed expansion on our route has not yet been approved. He has been made aware of the severe impact of VIA's proposal on the Great Canadian Railtour Company. Today I'm asking the committee to support a decision by the minister to halt any proposed expansion by VIA Rail that is in competition with the private sector, not only on our route but on any future route where a private company may operate in conjunction with a crown corporation.

.1725

A commitment to undertake a comprehensive review of passenger rail travel was made by the federal government but has not yet taken place. There is now a pressing need for clarification of the role and mandate of VIA Rail. Our hope is that the committee will consider recommending in its next report to Parliament that the government proceed with such a review. In fact, in the interest of a full public review, we would support the government assigning this very important and timely task to the Standing Committee on Transport.

In summary, we should all be concerned about the bottom line. The bottom line in this issue is that we purchased and paid for the right to privatize a service that was formerly being subsidized by taxpayers. I'm proud to advise the committee that not only have we not been subsidized, but now we are paying taxes to the federal government. The bottom line is also reflected in the fact that if VIA Rail does not expand its service on our line in 1997, the needs of the crown corporation and our customers will still be served, but if they are allowed to expand, our company's future and everything we've worked so hard to achieve will be put in peril.

I'd like to go from my prepared text and respond to a couple of items that came up in the Transport 2000's presentation. That organization is hardworking and quite diligent in trying to promote the interests of the transportation industry. I commend them for that, but I believe that a few of their items are factually wrong.

First, they made a comment that Rocky Mountaineer and VIA did not compete on the same route, and we actually do between Vancouver and Jasper. They also made a comment that VIA makes 150% of their out-of-pocket expenses...in referring to an article that appeared in the Vancouver Sun a few months ago. Either the writing of the report was wrong or the whole story wasn't put out, but it seems that if you read between the lines what was meant to be communicated is that their direct costs were being picked up 150%. Our direct costs, our operating costs, are less than 40% of our business. If we were only to achieve 150% of that we would be broke.

I do take exception to the comment that Rocky Mountaineer bought any cheap equipment. We bought them at a fair market price from a knowledgeable buyer, which was VIA, and we paid cash. We've spent oodles of money in renovating and upgrading this equipment, and it's constantly inspected. Any reference to cheap equipment I think is offensive, especially in light of the fact that we just spent $2.8 million bringing on the first brand-new passenger rail service car in the last 40 years.

There was also mention of passenger volumes and the numbers that may be being lost. I can assure this committee that if that volume were out there we would be taking it. We will do everything we can to get those 600,000 passengers - and you can just ask my board member how diligent he is on that.

On the issue raised by one of the speakers about politics, I think it casts aspersions on other people, and I don't think that's appropriate. The issue of transcontinental rail service has been an issue since the 1960s; numerous governments have looked at it. In reference to Sam Blythe's proposal, I think Mr. Blythe should be complimented on trying to get an initiative going. He was not able to, for whatever reasons, but I don't believe he was part of any government proposal that was made. So I thank you for making those comments.

The Chairman: Thank you, Mr. Armstrong. We certainly know politics here. But perhaps I should say, before I turn it over to the members for further questions, something along the lines that I can't emphasize too much that we're not in the business of putting at risk anybody who's taking on risk in the private sector. That's not in the mandate of this committee.

Mr. Keyes.

Mr. Keyes: Thank you, Mr. Chairman. I want to preface my question by saying that I've taken the opportunity to ride the Rocky Mountaineer service, and it truly is a first-class operation.

I want to address exact pages here if I can, Mr. Armstrong. Thank you for your presentation to the committee, because going beyond what may look on the surface to be nothing more than the Rocky Mountaineer bringing its problems to the committee, I think it's indicative of what could happen in other modes of transportation and in other sectors as well across this country.

.1730

On page 3, first paragraph, it is stated:

During a period when downsizing and a continued dependence on taxpayer support is the norm in the passenger rail transportation sector, we've shown that the national dream can be kept alive without government subsidy.

How do you respond to a previous witness, Transport 2000 Canada's remark that yours is nothing more than a niche market?

Mr. Armstrong: I think there's been a transformation in passenger rail. Over the distances we travel, most people will not take train travel, point-to-point transportation. I believe our industry has changed, like the cruise ship business was once the steamship business and it has now evolved into something different. While we presently don't pick up passengers in Salmon Arm, I'm going to check to see if there is a market and I will pursue that.

Mr. Keyes: Just like the free enterpriser that he is.

On page 4 you state that:

VIA operates more than 6,200 train miles across Canada, but wants to expand its service only on the 500 or so miles of track between Vancouver and Jasper.

Do you think that particular 500 miles or so can support more than one operator? Is there room for one or two or more operators on that particular 500 miles?

Mr. Armstrong: I'm not qualified to answer that specifically. What I am qualified to say is that it could not support a private sector and a publicly subsidized operator. We're not asking for a monopoly. There may be other operators who can do a better or equal job to us who want to approach it the same way. I would imagine they would have to do exactly the same thing as we did, raise the money and negotiate stand-alone agreements or operating agreements with the carriers.

Mr. Keyes: On page 6 you mention that agreement, the 1990 purchase agreement. How long does that agreement run for?

Mr. Armstrong: All the provisions will expire by December 31, 1998.

Mr. Keyes: So there are still a few more years left.

Mr. Armstrong: A few more years left. Certain items, of course, in the agreement have expired already, but the final portions of it will expire, the whole agreement will expire by then.

Mr. Keyes: And that time lag, you would suggest then, would anchor your business that much more firmly into that market, so that if competition did come along you would hope the tourism industry would prefer your service over the other service, if notes were compared.

Mr. Armstrong: Right. If we're talking one private company to another, I hope we would be able to take on any challenge from the private sector. I would still have the same concerns if I had to compete with a subsidized service. Presently our most economical service is our Signature class service and next year it will be priced at $575 per passenger.

VIA's best service, their roomette service on their wonderful Blue & Silver service, is priced at $580, a $5 difference. I don't know why they have a problem not increasing the price to a more market level, but they don't and they fill up their train with people who are buying a subsidized trip.

Mr. Keyes: Along that vein, on page 7 you said that you're ``fully prepared to work with VIA Rail as a complementary passenger rail service''. What does that mean when you compare complementary passenger rail service on that 500 miles from the southern route with the service you provide?

Mr. Armstrong: When we entered into the arrangement to buy the Rocky Mountaineer, one of the things the government indicated was that they did not want to be in the tourism business, but they wanted to have the option to still provide transportation if directed by the government to do so. We are presently selling seats on other VIA services that complement ours. These include the transcontinental from Toronto to Jasper, and Jasper to Toronto. We also put people on VIA's service from Prince Rupert to Skeena and we compliment them on revising that service.

We don't have a lot of ill will for VIA; we just don't want to have to compete with them. We'll support them where we can.

Mr. Keyes: So when you talk about the complementary passenger, that doesn't mean their running on the same track in the same 500; you're talking about outside that southern route.

Mr. Armstrong: That's correct.

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Mr. Keyes: I see. The impression that's left - I can't remember the page number now - on the government's contribution subsidy to VIA is that it's usually portrayed in cash dollars, a cheque from the government to VIA. Is that the only form of subsidy that VIA gets or is there something else other than the cashflow that troubles the private sector?

Mr. Armstrong: There are a few other items besides the cash. Obviously they do not have to return that or pay any interest on it. When injections of capital are made into the corporation, they have no rates of return that the shareholder is receiving.

That is not the case in our situation. On any proposal I put forward to my shareholders, I have to indicate to them how they are going to get their money back, and at what rates. They make their business decisions on that.

So that's a very favourable item. On top of that, prior to the commercialization of CN - by the way, we have an excellent relationship with CN - VIA had an extension on the present operating agreement for an additional 10 years at rates that are very favourable and much cheaper than anything any other private operator would receive.

Mr. Keyes: Thanks, Mr. Armstrong, and thank you, Mr. Chairman.

The Chairman: Thank you, Mr. Keyes.

[Translation]

Mr. Crête.

Mr. Crête: Mr. Armstrong, if you were the Transport Minister and if you had to develop a policy to use rail as a means to expand the tourism industry in Canada, what would be the main points you would emphasize?

[English]

Mr. Armstrong: What a wonderful thought! I believe VIA Rail could be a very useful partner in the whole transportation network if it was in the private sector. I have been approached by other operators in other parts of Canada, specifically in Quebec, as a matter of fact, who are looking for private operators to take over routes. There are opportunities there for the private sector to work with tour operators to make passenger rail service successful.

If I were the Minister of Transport, my focus would be to find entrepreneurs who wanted to take on these challenges and take every hurdle out of their way to make sure they could be successful. I'd also indirectly reduce the subsidy that taxpayers have to pay. I would bring certainty and longevity to rail transportation in the future. As long as VIA is dependent on government funds, I think its longevity is uncertain.

[Translation]

Mr. Crête: It means that you would like the Transport Committee to be charged with the review of VIA Rail's mandate. You would like us to reexamine the overall mandate of VIA Rail, not only to explore its tourism activities, where competition is tense.

[English]

Mr. Armstrong: Those elements would be part of it, but as I mentioned in my presentation, I feel the review of passenger rail needs to be done. This may be the correct form in which it's done. I believe there is a role for the private sector to contribute and revitalize passenger rail service.

I can cite a personal example. In 1975 I started a small bus company when B.C. Hydro owned the Gray Line franchise. At the time, there were only two or three bus companies in Vancouver, and there was a very small selection of buses and they were all old.

When the government decided to privatize seven bus companies under B.C. Hydro, every one of them became profitable almost instantly. We now have in excess of 40 bus companies. We have every type of bus, from handicapped to those with language-specific operators. They are doing quite well without any subsidies. Once you took the government out of the equation, the private sector came in and responded very creatively. Thank you.

The Acting Chairman (Mr. Keyes): Mr. Gouk.

.1740

Mr. Gouk: First of all, I have to tell you that a position I passed on to you before I have now changed. You were concerned at one time that VIA was going to try to go into competition with you on the clause. In your contract it says that if the government asks them, then they have the right to start operating. I said that I would not oppose their running, I'd only oppose their being subsidized to run. They had to run it in a business-like manner without subsidy.

I've changed that position. I now say they should not be in the business to compete against the private sector, period. If they privatize, if they're successful, they'll operate. When they're not successful, they won't operate - the same as any other private sector.

I also at one time heard you make the statement that you're not a railroader, that you're a businessman who runs a railway. In that context, I would ask you for your opinion on this scenario, as a businessman obviously directly connected with the rail business. If a subsidized VIA Rail ends up competing with a private company that it in fact had sold and goes directly against them with a subsidy, what future does that suggest for any kind of government spin-off of a crown corporation to the private sector, if people are going to look at that as an example?

Mr. Armstrong: I think if that scenario were to take place - and we hope it never does - it would send a very bad message. I don't think the private sector feels comfortable investing in a business where it knows its chief competitor, or only competitor in our situation, can lose basically almost double its total revenue and still exist.

Mr. Gouk: Finally, if other rail opportunities were to be offered by VIA Rail in the process of privatizing part of their operation, would the Great Canadian Railtour Company be interested in looking at some of those operations?

Mr. Armstrong: The Hon. Doug Young asked me that very specific question in August 1995, and I told him yes. I even mentioned that we would like to look at the transcontinental service. I've made that known to the VIA officials, and I have not had any response in the way of pursuing it, other than the fact that they weren't interested.

I would also like to touch on an item Mr. Keyes brought up about the niche market, to make sure I covered that off.

On our route in western Canada, it is definitely not a point-to-point transportation for VIA Rail. It is a tourism market. It has always been a tourism market, ever since the first trains came through. As Van Horne used to say, if you couldn't export the scenery, import the tourists. The railroads in western Canada carried mostly tourists initially. That's where the grand hotels came from.

We want to carry on that tradition, and I think the private sector can do it. We're not talking about a situation of running a commuter rail between Hamilton or Toronto. We're talking about a specific market that will pay a higher price for the experience of seeing the scenery.

Mr. Gouk: When you talk in terms of a specific rail service, perhaps I can put into perspective what VIA Rail has been doing. VIA Rail at one point recently offered under their VIA 1 service, their top-of-the-line service, round-trips between Toronto and Kingston, deluxe meals in both directions including a multi-course meal with appetizers, dinner wine, after-dinner liqueurs, for a total price of $97. Most restaurants could not offer the meals for that and make a profit. That is what the private sector is competing with with VIA Rail, and that is why it's time VIA was out of the rail business, period.

The Chairman: I'm just wondering what a bi-directional meal is.

Mr. Gouk: That's one that you look at later.

The Chairman: Mr. Armstrong, did you want to respond to that?

Mr. Armstrong: I happen to agree with him.

The Chairman: Thank you very much. It's an interesting service and one that we're pleased to see in Canada.

Mr. Armstrong: I would be remiss in my duties as an official of our company not to at least tell you we have our new brochure, and I'm in the business of selling tickets. If anybody would like a brochure, I would be happy to hand them out. Thank you.

The Chairman: Thank you very much.

.1745

Our last presenter of the day - our last presenter of our trip to Vancouver - is from the Alberta Roadbuilders and Heavy Construction Association, Mr. Barrie McPhalen.

Mr. Barrie McPhalen (President, Alberta Roadbuilders and Heavy Construction Association): Thank you, Mr. Chairman. I noticed you leaving the room a few minutes ago, and I was somewhat concerned. I thought, having heard me speak before, you were going to make a break for it.

The Chairman: I was simply getting prepared for it. However, the rest of the crew has heard you speak before.

Mr. McPhalen: It looks like it.

First of all, thank you for the invitation to be with you today. Perhaps before I get into the nitty-gritty of it here I would just tell you a little bit about the organization I represent in Alberta.

We have 350 members, with 14,000 direct employees and an annual payroll in excess of $500 million. If you use our multiplier of 2.4, I think you'll agree that we make a considerable impact on the economy in Alberta, as do our counterparts in the rest of Canada.

Our sector of the construction industry derives a great deal of its revenue not from building highways but rather from the infrastructure construction that goes with economic expansion. I think it's very important to carry that thought through the rest of the day.

We will, if we're talking about a national highway system, undoubtedly derive some revenue from the creation of that system, but the real generation of cashflow into our sector will come from economic expansion and the creation of new manufacturing facilities or the support systems that go with them.

I'd like to challenge you a little bit today. I'm sure as you go through these hearings you're going to be inundated with facts and figures. I'd rather come at you with a couple of a little more esoteric things; first, a recognition that we now compete in a world marketplace. If we are going to be competitive in the world marketplace, then we have to have a system in place to sustain those companies that do the competing.

If you look at the information provided in the most recent Transport Canada documents, where they studied the highway system, you'll see in there that 75% of the manufactured goods in Canada are now moving by truck, and 90% of inner-city traffic is now being done on roads. So it would be obvious, then, that an extremely good highway system is required here.

The vision that goes with the recognition is a national highway system. I guess the closest example of that would be the interstate system in the U.S., which ties together the economics of the states and allows them to get their goods to the border points and into the world markets.

About 10 years ago the transportation ministers in Canada, provincial and federal, got together to try to put together a concept of a national highway system and examine the existing system to see what was lacking in it. They identified a lack of a comprehensive highway network that would allow rapid, efficient flow of traffic from one part of the country to another or to export outlets.

They identified serious structural deficiencies in the existing and now ageing highways. They designated 25,000 kilometres of highways across Canada as important to either interprovincial or international trade.

So this is not every road in the country, and it's not every major highway. It has to be a road that takes you to a market or brings the raw material to a factory.

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The vision of a comprehensive highways program is driven by the recognition of the vital role highways now play in facilitating this trade. Canada must make a move toward becoming a serious competitor in world trade if we are going to survive in the global marketplace. I would put it to you that the highways in this country will be the engine to drive that.

From our point of view, the primary benefit of a national highways program would be the job creation from enhanced interprovincial and international trade, resulting in economic growth. During the construction or upgrading of the existing system, there will also be jobs created, but the long-term vision here is the economic growth.

Those of you who have strong roots in the municipal world might be interested to know that a lot of the cities - speaking of Alberta, Calgary and Edmonton in particular - are in desperate need of upgrading of ring roads and bypass routes. We're getting a lot of gridlock. If you want a good example of that, try to move out of the port of Vancouver.

So there is a municipal flavour to this in the sense that anywhere where one of these economic highways passes through a population centre it would be eligible for funding as part of the system.

We can talk about safety. Again, these are the facts and figures you're going to get thrown at you a lot, but there's a direct link between safety and the condition of a highway. Those of you who have the misfortune to have to drive in northern Ontario on Highway 17 know what I'm talking about.

Along with that, of course, is lost time in travel, fuel consumption increases, and higher vehicle maintenance costs. These tend to drive our truckers down into the States when they're trying to move across Canada.

I happened to be on an open-line program in Edmonton a couple of years ago. We had a guy calling in who was about to leave Calgary and drive to Montreal. He was going to go through Ontario. Why he would do that, I'm not quite sure, because it really doesn't make a whole lot of sense economically.

He indicated that it would take him eight hours longer, one way, to make the trip through Ontario. So in one trip he's losing almost a full day of productivity. When you look at the support services that go with the trucking industry - the fuel he would consume, the mechanics, the parts he would buy - all going to the States, I don't think we can tolerate that either.

In our brief we make mention of the hidden deficit. There's another hard reality about roads. If you don't maintain them when they need to be maintained, when you finally get around to doing it it's going to cost you a great deal more. It's not a straight-line relationship. The curve goes up rather rapidly. If you let the road go to failure, you can experience costs in the order of five times what it would cost to maintain it in a pragmatic fashion along the way.

Unfortunately, across Canada that's not being done. There isn't enough funding there, and the highways are deteriorating rather quickly. So the longer we delay creating some sort of a national highways program the more it's going to cost us.

Looking at it from an Alberta perspective - although really, I think Alberta is Canada - from an economic point of view, the reality in Alberta is that we're moving away from being a hewer of wood and a drawer of water. We're attempting to get our economy away from direct dependency on oil and agriculture and into manufacturing. You'll note that we now have 18,000 direct jobs in agricultural manufacturing in Alberta. Instead of shipping the wheat to a mill elsewhere in the world, we're processing it in Alberta.

Forest products has become a very big industry in Alberta. They are now starting to manufacture there rather than ship the logs to other jurisdictions.

General manufacturing has 119,000 direct employees. The multipliers on those range all the way from 2.5 to 3, depending on which one you're talking about.

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One of the most important things in our brief, and we tend to forget it, is that in Alberta there are 90,000 direct employees of the tourist industry. It's a huge $3.5 billion per year industry to us. Another interesting statistic is that the tourist industry in Alberta spends $250 million on capital upgrades every year. I can tell you, despite the previous speakers, that the vast majority of those people travel to Alberta on roads. If the roads aren't any good, they won't come. I think we can take this into Quebec or any other attractive tourist destination in Canada and say the same thing. I know the Maritimes are suffering badly from this.

One of your mandates was to discuss funding. We can talk all we want about the need for these things, but the bottom line is how are we going to pay for them. There are ways in which the public sector and the private sector can come together in partnership to create highway systems, overpasses and what have you. You've got to be careful you choose the right location. Highway 407 in Ontario is a great example of what you can do with a toll road. If you tried to do that in Alberta it wouldn't work. We simply don't have the traffic to sustain toll revenues. However, there are other angles you can use to get the private sector in there and we're quite prepared as an industry to participate in this.

Our vision of a national highway system would take approximately 10 years to create. It's about a $10 billion program, and of course those costs are escalating every year. We're recommending the funding be on a 50-50 basis between the provinces and the federal government. We're absolutely convinced that if the federal government does not take a leadership role on this issue, it will not happen. The provinces will go their own way.

It might be disconcerting to you to know Alberta's focus at the moment is to build an economic highway, and this is what they're calling it, from Grande Prairie to Coutts, which means they're going to run north to south into Montana and then off to market. I think as a nation this is counter-productive, but this is the hard reality of it. Unless we can put a system in place that will allow funding to get us through the mountains into B.C. ports or through to Ontario, we'll continue to go south. As a Canadian, I find this an unhappy situation.

We believe some sort of national trust should be created to administer this program. It is too important to be left to changes in government and changes in ministers. We believe it could be done without creating a bureaucracy and still be more effective. This is not to say bad things about the people at Transport Canada. I think it is just too big an issue and too important to leave it as part of a general mandate.

In summary, I would say the emergence of Canada as a manufacturer of finished goods and an exporter to the world marketplace has increased the need for an economic highway network to sustain the new economy. Canada's major economic highways are in poor condition and incapable of facilitating the efficient flow of goods and services within the country or to markets. Federal participation and leadership is absolutely essential to this issue. The benefits of such a network include job creation, an expanded and diversified economic base for the country, more efficient and cost-effective movement of goods, and an enhanced tourist industry.

As a side note to this, Canada has always had a very, very strong reputation in the engineering field. We represent some companies in Alberta in this field, and generally firms that do highway construction, design and project management. There is a lot of new technology out there now. I think as part of a national highways program, you could easily start to incorporate some of this new technology and make us an even bigger player in world markets as a centre of excellence, if you will, for this type of thing. For example, when it comes to reinforcing in concrete, we're now looking at carbon fibre as a viable alternative to iron rebar.

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The Chairman: [Inaudible - Editor]

Mr. McPhalen: Yes. There are problems. But again, there are places where you could apply it and it would work.

Every day we delay increases the cost of what must inevitably be done to bring our key highways up to acceptable standards.

In the appendix I've included what the transportation minister has designated as the national highway system. It's not etched in concrete or steel but would at least give you a bit of an idea of what might be. The ones in Alberta are fairly obvious.

On another page there are expenditures per thousand kilometres of highways. Our expenditures do not rank in world standards.

The next page is what I referred to earlier about the cost of delays in making the appropriate repairs. The second page of this is a little exercise in what would happen if you went out and borrowed the money rather than waiting for the highway to fail.

Then, of course, the last one is the various fuel taxes collected by the various jurisdictions. I'm sure some of you are aware the federal government collects in Alberta something in the order of 13.2¢ per litre in fuel tax. I believe they put $30 million back in over the last three years, so somehow or other I don't think we're getting our money's worth.

I'd really prefer to stop there and perhaps just do some questions. I think we could probably be more productive if we did that.

The Chairman: Thank you, Mr. McPhalen. This is interesting. It is the first time I've seen this work on defraying capital costs, speaking about that directly.

Mr. Crête.

[Translation]

Mr. Crête: When you say that the overall project will cost $10 billions, are you talking about the net cost, which would include the additional revenues coming from the taxes paid by workers and the savings due to the reduction in welfare payments and other items you mentioned in your document, or is that the gross cost? In various places, the figure which is mentioned is $18 billions. Could you clarify this?

[English]

Mr. McPhalen: No. It is the gross cost and it is the bare minimum. In the Transportation Association of Canada report they actually identified two scenarios. One had an $18 billion cost attached to it and was much more elaborate. Quite frankly, I don't think we can sell this politically in today's economic environment. So our figure is a bare minimum, but it is gross. There is a great deal of payback on this. Payback ranges from job creation, where you take the individual off unemployment and he starts paying taxes, to the taxes we would pay for acquisition of new equipment.

I might suggest to you that at least 75% of this would eventually end up back in a government coffer. It would not necessarily come back federally, but it would come back. So it's a pretty good deal.

[Translation]

Mr. Crête: A few years ago, in Quebec, there was a program called Équerre. To reduce the cost of the program, the unions, the Quebec Federation of Labour and the employers agreed to make a contribution. For instance, workers agreed to put in a kitty $1 of their hourly wages.

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Do you think that, in this case, it would be possible to persuade employers to contribute so that the project can be implemented and they can benefit from it, and to also get unions and workers to invest in it? Do you think it would be a realistic system in your area?

[English]

Mr. McPhalen: This would not be possible in Alberta. Let's say there is 13.2¢ per litre in federal fuel tax being paid and very little coming back. Depending on the $10 billion or $18 billion that you choose, somewhere between 1.5¢ and 2¢ per litre would fund the federal portion. Quite frankly, our view is that the first place you would go would be to the federal government. You would challenge the federal government to deliver some of this money back into the system from whence it came. I don't think it is appropriate that all of this money should be taken out when so little comes back.

Annually, I'm told, this federal fuel tax generates about $5 billion. So I would go there first.

The second place I would go would be to the private sector and say, we want you to finance this road. We don't care how you get the money, but we want you to come up with funding for this interchange, or for this stretch of highway, or whatever.

So I would suggest to you that it might not be necessary.

You also mentioned the unions. There is an opportunity in public-private partnerships for unions to participate with their pension funds or what have you. They don't necessarily have to do it as payroll deductions. I think it's an interesting idea, but I don't think I would go there first.

The Chairman: Thank you, Mr. Crête.

Mr. Gouk.

Mr. Gouk: Thank you, Mr. Chairman.

Obviously you take great pride in Alberta. You only left out one good thing about Alberta, and this is its best feature. On a clear day, you can look west and see the promised land.

Mr. McPhalen: There's a barrier there, but....

Mr. Gouk: We do open it occasionally, though, and let Albertans in, especially in my area.

You mentioned the creation of a national trust. This runs in very close parallel to my own personal belief of having dedicated revenues and having the government have some accountability for the money we take in.

You mentioned a need to raise, between federal and provincial governments, $10 billion over 10 years. British Columbia alone, at the federal level only, contributes almost the entire $10 billion over 10 years, so I think it can be done.

Of course, we have to recognize that when you take this away from the federal government in consolidated revenues, then there is a shortfall there. I've knocked the government at certain times for not having a proper transition period for the implementation of new programs. It is reasonable that I give the same leeway to the government in something like this. I would like to see it just, bang, go into dedicated revenues, but there has to be a transition. But I think it is the direction we have to go in, and I think it is probably a good start.

There were a couple of things I wanted to ask you about specifically as a road builder. Under funding, you mentioned that you favoured a per capita funding as opposed to a per kilometre cost. Across the prairies it is relatively straight and flat, and there is less need for passing lanes, notwithstanding the blue line indicating four lanes. I think both the need and the cost of construction are significantly different on the prairies as opposed to British Columbia and a portion of the western part of Alberta, where it is very mountainous as well. Would there not have to be something to recognize and take into account that it is a much more expensive construction area?

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Mr. McPhalen: Yes. If you've read the Transportation Association of Canada's reports, when they came out it was to be allocated on a per kilometre basis.

Mr. Gouk: Yes, which is equally -

Mr. McPhalen: Ontario had a lot of trouble with this. In fact, I think Ontario frustrated the program about two years ago because of their misgivings, saying they had 40% of the population and therefore should get 40% of the money. What I would see is a program something like Jack recommended, which, to be a levelling force, set aside 20% of the money. Again, I don't want to get into saying today it should be 70% or something like that. But let's say we should be flexible on this and, yes indeed, you do have far higher costs than we do in -

Mr. Gouk: Why not to some degree have it done through a regional funding, based on the fuel taxes collected in this area both at the federal and provincial levels?

Mr. McPhalen: I think this is quite valid as well. I don't have any studies, but I might suggest to you that you're liable to come up with the same kind of numbers that would still leave places like B.C. short because of their extremely high costs.

Mr. Gouk: Sure. I would see some variation on it.

Mr. McPhalen: Yes, and let's be reasonable about this. What I'd hate to see is the system going down the toilet because somebody stood there and said no way, they had to have their 15%.

Mr. Gouk: One last area, again from your funding, is that you mentioned a concept of tolls. You suggested in some areas where you have high traffic density this might be feasible, but in lower-density areas it wouldn't. How would we justify to the areas where we have the tolls that it is because of their high density they have to pay tolls and other areas, because they're low density, don't have to pay them? How would we equalize that?

Mr. McPhalen: Well, you need to look at the opportunities each area presents to you. In Alberta, for example, when the department of transportation there buys a right of way, they don't normally just buy a 150-foot swath. They buy the whole section because it's easier to deal with the farmer that way and just buy him out. They have had, in the past, huge land banks.

Four-lane highways tend to attract business. So I come to you as the government and say, let's do a partnership here. You say, this is okay, but you don't have any money you can put into it, although you have all this land. You give the land to the developer. The developer can take it and develop it into an industrial park or what have you and there can be some payback this way. In some cases, if that wasn't a fit, it might just be that I'll finance it for you over 30 years and hand it to you at the end of this time.

You really have to look at where you are and what's the best fit. The Charleswood Bridge in Winnipeg is a good example of this. They came in and it was a design and build job. It was done a year quicker, was 10% cheaper, and it's a 30-year payback. The city can't lose. They got the bridge when they needed it, at a cheaper price, and in the meantime the debt isn't on their books.

There are a couple of things I would like to comment on related to your earlier remarks. I've been at this for about four and a half years now with the association. When I started out, I talked dedicated fuel tax. You can't sell that to bureaucrats and you can't sell it to politicians, because they don't like to be handcuffed. If you can do it, it is obviously the proper way to do it, because then you've got it. But it is an extremely difficult sell. We've gone to the term allocated -

Mr. Gouk: Can you sell it to the public?

Mr. McPhalen: Yes, you sure can.

Mr. Gouk: Then why should we not be able to sell it to the politicians, who are only the servants of the public?

Mr. McPhalen: Well, I think we're going to need a -

Mr. Keyes: Start listing off all the different things you'd want to do with dedicated money, and before you know it you've got a list from here to the moon.

Mr. Gouk: What's your point?

Mr. McPhalen: It's a tough sell. This is all I really wanted to say on it. If we're going to debate that one, we'd better go and get a couple of cases of beer, because it will take awhile.

Mr. Gouk: That sounds all right, too.

Mr. McPhalen: The other thing was that if you don't go to dedicated funding and if you take some money out of the existing fuel tax, what impact does this have on the federal coffers? I would suggest to you there are probably enough opportunities for savings in government to more than make up for this.

I'm not rubbing Alberta in your face or anything here. It is just that it happened recently. The province of Alberta privatized the maintenance of the primary highway system as B.C. did a number of years ago. This generated $40 million annually in savings. What they did was take this money and pump it right back into the highway system to create the economic highway.

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I would suggest if the federal government really wanted to get this money badly enough, there are places savings could be made that would allow the private sector to outsource some functions. There are any number of opportunities there.

Mr. Gouk: I would like to mention one last thing. In some respects it has been brought up before. You'd think there would be general public support if the participation level became instead 50-50 between the federal government and the provincial government. If we're talking in terms of 1¢ and 1¢, if it were 1¢ dedicated from the fuel revenues of the federal government, 1¢ from the provincial government, and 1¢ dedicated additional new tax, and if the whole 3¢ or whatever the ratio is went into that fund, would this be saleable?

Mr. McPhalen: Yes. If you'd asked me this a year and a half ago, I'd have said absolutely not. New taxes are totally repugnant to everybody these days. Yet the federal government raised the fuel tax a cent and a half here and nobody blinked.

Mr. Gouk: And we didn't get anything of it.

Mr. McPhalen: No, and we didn't see it either. I thought that's what they were doing. I thought they'd raised it so they'd have some money to put into this program, but it disappeared into the morass. Certainly from a public relations point of view, it seemed to work. The truckers didn't squawk. I thought they'd scream blue murder. The automobile association didn't say a word.

Mr. Gouk: Maybe they're all just whipped.

Mr. McPhalen: I don't know. But no, I don't think you'd have any trouble at all doing this.

Mr. Gouk: Yes. Thank you.

The Chairman: Mr. McPhalen, thank you very much for a most interesting presentation. I understand there is sufficient carbon in those tar sands to provide all the low-cost carbon fibre Canada needs. Is this not the case?

Mr. McPhalen: Yes, I think so. We have lots of that, all right.

Well, thank you for indulging me today. I really feel strongly about this and I wish you well in your deliberations. It is an incredibly important thing to this country to see this through. If there is anything else we can do to assist along the way, please feel free to come back to us. You're not that far away. You are not holding these hearings in Calgary, where we would have had to go skiing, but....

The Chairman: Thank you very much. It was good planning.

Mr. McPhalen: Yes.

The Chairman: That's it for the day, folks. We're on a plane.

The meeting is adjourned.

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