I. BACKGROUND

The Peace Bridge across the Niagara River connecting Fort Erie, Ontario, with Buffalo, New York, is owned and managed by the Buffalo and Fort Erie Public Bridge Authority, a corporation incorporated under the laws of the State of New York, and given authority by an act of the Congress of the United States, passed in 1933, and an act of the Parliament of Canada, passed in 1934. The Authority is composed of six residents of the United States appointed by the Governor of the State of New York and three residents of Canada appointed by the Governor in Council. The purpose of the Authority and its predecessor companies was to erect an international bridge across the Niagara River as a memorial to a century of peace between the two countries, the money to be raised by public-spirited persons and the bridge to become toll-free upon the liquidation of the debt incurred in its construction. Most of the capital was subscribed in the United States and most of the bonds now outstanding are held in the United States.

2. The bridge was not a profitable enterprise during the depression of the 1930's, but in recent years it has been showing a net surplus which in each of the calendar years 1953 and 1954 exceeded $550,000. Under existing legislation the assets on either side of the boundary revert respectively to Canada and the State of New York upon retirement of the bonded indebtedness of the Authority. The bonds now outstanding must be retired not later than January 1, 1962, and could be retired as soon as enough money is in hand if the Buffalo and Fort Erie Public Bridge Authority so wished. Calculations suggest that retirement would be possible by January 1957.

II. SOURCE OF THE PROBLEM

3. Buffalo used to be the fifth largest port in the United States but now rates about twentieth. In an endeavour to improve its position, the city has, since 1928, been trying to promote a port authority along the lines of the New York Port Authority. Six attempts have been made to secure legislation from the State of New York to establish a Buffalo port authority but all of these bills failed, apparently because the legislature was not satisfied that the projects would be self-supporting. On February 22, 1955, the State Legislature unanimously approved a bill providing for the establishment of a Niagara Frontier Port Authority. The new feature in this bill (which has the approval of the Governor of New York) is the inclusion in the Niagara Frontier Port Authority of what is known as the bridge project, i.e., the Peace Bridge. The bridge project is expected to supply a steady source of income which will make grants from the State budget unnecessary and to provide an asset which will permit bonds to be floated to finance capital expenditures.

4. The New York State Act of 1955 touches upon Canadian interests in several respects. It provides that the Port Authority is to be composed of eight members appointed by the Governor of New York from the Buffalo district and three members appointed by the Government of Canada. Under the Act as it now stands, the three Canadian members would act only in respect of matters affecting that portion of the Peace Bridge which is situated within Canada. ( Buffalo officials have since indicated their willingness to have Canada have an equal voice in the control of the bridge.) The New York Act by implication recognizes the reversionary interest of Canada in the part of the bridge which is in Canadian territory, and provides that the New Authority should act as the agency or instrumentality of Canada in respect of the assets and property situated in Canada. The Attorney-General of the State of New York in a written opinion on the New York Act stated that the State Legislature could take no action purporting to alter the existing status of the Peace Bridge without the consent of the Parliament of Canada and the Congress of the United States.

5. Representatives of the State of New York and the City of Buffalo, with the support of the United States Embassy, have asked that the Government of Canada approve the proposed changes in the régime of the Peace Bridge and extend such co-operation as is necessary to permit the bridge project to be included in the Niagara Frontier Port Authority. They have stated that the Port Authority could not function unless it included the bridge project, and that without it the whole scheme would collapse. They also stated that the terms of the trust indenture which accompanied the issuance of bridge bonds in 1946 make it necessary that the bridge and the port be included under one authority if the New York share of bridge revenues is to support the port project. They have said that two legally separate but related corporations would not meet their requirements. It is the request of the New York and Buffalo authorities that the Government of Canada will secure such Canadian legislation as may be necessary in order to allow the bridge project to be brought within the Niagara Frontier Port Authority, and that it will agree that the bridge should not become toll-free but should be used as a source of revenue the net surplus being divided equally between Canada and the Niagara Frontier Port Authority. The New York interests have estimated that even with a decrease in tolls from the present basic toll of 25¢ to 15¢, an annual net surplus of the order of $600,000 could be realized after bonds have been redeemed. No figures have been produced to justify this assertion.

6. The same interests have asked that the Canadian Government take action to enable the bridge project to become part of the Niagara Frontier Port Authority as soon as possible. The Port Authority is now in being, as the United States members have been appointed. They will take control of all their other assets by July 1, 1956, and say that they will need to be able to use their portion of the bridge as security for bonds to raise money to inaugurate their programme of capital improvements in the port. The New York interests have further represented that if the scheme fails because the Niagara Frontier Port Authority is unable to have the use of the United States portion of the bridge (and on time), the opportunity will probably be forever lost because supporters of the New York Thruway will then persuade the legislature that it should turn the New York interest in the bridge over to the Thruway and abandon the Buffalo Port Authority scheme.

III. QUESTIONS FOR DECISION

7. The desire of the State of New York and the City of Buffalo to alter the existing arrangement for operation of the Peace Bridge raises two principal questions:

(a) Is the Government of Canada willing, subject to the passage of the necessary legislation by Parliament, to accede to the United States desire that the Peace Bridge should be operated as a toll bridge with the object of making a profit?

(b) If the answer to the previous question is affirmative, what form should co-operation with the State of New York take to achieve this aim?

Discussion

8. The following are arguments in favour of operating the Peace Bridge as a profit-making toll bridge:

(a) If the Peace Bridge were toll-free, or if the toll were merely sufficient to cover operation and maintenance, it would be difficult to arrange, in the future, for the financing of an additional bridge in the area by private capital when increased road traffic requires an additional bridge. The federal government could expect to be asked either to reimpose a high rate of tolls or to finance half the cost of a new bridge. It could also expect to be asked to pay the cost of improving facilities on the Canadian side to take care of increased traffic over the existing bridge.

(b) Refusal to agree that the bridge should be operated as a profit-making toll bridge may be expected to generate considerable ill-will towards Canada in the Buffalo area. While there appears to be some doubt in New York as to the entity which should receive the profits from the United States interest in the bridge, there does not appear to be much doubt that the bridge should be a profit-making toll bridge.

9. The following are arguments against operating the Peace Bridge as a profit-making toll bridge:

(a) Profit-making will be a contravention of the original intent of those who conceived the idea of the Peace Bridge and subscribed the money to build it.

(b) There may be some doubt as to the propriety of levying tolls on the bridge to raise money for a purpose not connected with the bridge.

(c) Operating the bridge as a profit-making enterprise creates a need to find some method of using the Canadian share of the profits. It could be paid into the Consolidated Revenue Fund, used for some local scheme for development, or paid into a fund for building an additional bridge in the future. All of these suggestions have drawbacks.

10. On balance, it seems advisable to accede to the American wish that the bridge be operated to provide a profit. If the Canadian Government refused to co-operate to the extent of agreeing that profit-making tolls should be charged, it might find that the New York interests would unilaterally terminate the present arrangement and impose tolls on their half of the bridge. The levying of tolls for profit on the American side appears in any case to be practically inevitable. The smaller the Canadian toll, the larger the American toll can be. The Canadian Government could thus be indirectly subsidizing the beneficiary of the American tolls. Moreover, refusing to allow the Peace Bridge to become an asset of the Niagara Frontier Port Authority will probably create considerable ill-will without aggravating the situation by refusing to agree to levy tolls for profit.

11. Three possible ways of working out an agreement with the New York authorities for a profit-making régime for the bridge are:

(a) The Canadian Government could agree to some suitable modification of the plan proposed by the New York authorities in connection with the Niagara Frontier Port Authority.

(b) The Canadian Government could agree to the operation of the bridge for profit by a separate corporation which could turn over half of the profits to the Niagara Frontier Port Authority and half to some agency designated by the Canadian Government.

(c) The Canadian Government could agree that tolls should be levied for profit, but suggest that each government own and operate its portion of the bridge separately, with certain functions being co-ordinated by agreement.

These possibilities are discussed below.

12. The New York Plan. It would be possible to make numerous modifications in the plan set forth in the law passed by the New York State legislature in February, 1955, in such a manner as to protect Canadian interests and ensure proper control and management. The argument in favour of co-operation along the lines of the New York plan, suitably modified, is based entirely on considerations of goodwill. Such press reports from the Buffalo area as have been seen suggest that Canadian refusal to fall in with the Niagara Frontier Port Authority scheme will be viewed as unco-operative in the Buffalo area. There will be a tendency to ask what more Canada could seek than the free gift of title to half the bridge, free use of half the profits, and an equal voice in the control of the bridge.

13. The arguments against co-operation through the New York plan are:

(a) The Canadian Government would be agreeing to an arrangement whereby Canadians would be appointed to an Authority the main purpose of which would be the improvement of the Port of Buffalo. The fact that their participation would be of the most indirect sort would probably not be apparent to the public; the whole New York scheme is based on a desire to make the Peace Bridge appear to be part and parcel of the Port Authority. On grounds of principle such an arrangement is probably unsound.

(b) The Canadian public would probably not be able to understand why the Canadian Government had agreed to place the Canadian portion of the bridge under a United States authority.

(c) The Canadian Government would be agreeing to an arrangement which appears to place the bridge under the Niagara Frontier Port Authority while really creating what amounts to a separate corporation to operate the bridge. This is not a straightforward operation, and creates some dangers, notably with respect to control, because it is difficult to be sure how the United States courts would interpret the New York act after amendment.

The disadvantages appear to outweigh the advantages of this course of action.

14. A Separate Corporation. A separate corporation to operate the bridge has the following advantages if it is acceptable to the State of New York:

(a) A contractual arrangement can be made with New York which would provide for complete equality of control and for the protection of Canadian interests to the full.

(b) It would be a straightforward, easily defensible arrangement.

(c) It would permit the Canadian Government to prevent the State of New York, or an agency thereof, from imposing tolls at will on the United States portion of the bridge.

(d) It should avoid involving the Canadian Government in paying for the upkeep, operation or replacement of the bridge and its approaches, in paying for improvements, or in paying for the construction of an additional bridge.

15. The disadvantage is that the promoters of the Niagara Frontier Port Authority may find such a plan unacceptable. They have already suggested that it will not suit them, because it would not allow the Port Authority to use the United States half of the bridge as security for bond issues. If the scheme of a separate corporation is acceptable, it should be possible to use the present Bridge Authority for this purpose after suitable changes in composition and terms of reference to give complete protection to Canadian interests.

16. Separate Ownership and Management. It would be possible to suggest that the New York interests take steps to have the existing Bridge Authority pay off its outstanding debts as soon as possible, thereby precipitating the reversion of the two interests in the bridge to Canada and New York respectively. The Canadian Government and such agency as the State of New York might designate could then levy tolls for profit. Each owner would be responsible for maintenance of its own share and for providing for the future. The advantages of this course are:

(a) There would be no untidy responsibilities left over from previous régimes. There would be no doubt as to ownership or control.

(b) From the United States point of view the principal advantage is that the Niagara Frontier Port Authority or other beneficiary would have absolute title to the United States share of the bridge, could mortgage it and its revenues for the maximum amount of capital for use in connection with the port, and would not be hampered by any undertakings to Canada with respect to the size of its obligations or the level of tolls it could charge.

17. The disadvantages are:

(a) This course might give rise to considerable friction. Ad hoc agreements would be required on matters like maintenance and repairs and rates of tolls and methods of collecting tolls.

(b) Toll rates could become a source of dispute, with one side wanting to charge more than the other.

Recommendations

18. The undersigned recommend that the Secretary of State for External Affairs be authorized to inform the United States authorities as follows:

(a) The Canadian Government is not prepared to appoint representatives on the Niagara Frontier Port Authority nor to appoint this Authority as the agency or instrumentality of the Canadian Government to manage and operate the Canadian portion of the Peace Bridge;

(b) If other suitable arrangements can be made, the Canadian Government is prepared, subject to approval by Parliament, to co-operate with the State of New York (or the Port Authority as its designated agency) in operating the Peace Bridge as a profit-making toll bridge for a substantial but limited period (say 30 years);

(c) Suitable arrangements could be on the lines of a separate corporation, distinct from the Port Authority, in which Canada and the State of New York would participate and have equal rights. Alternatively, the arrangements could take the form of the Canadian Government and the Port Authority respectively owning and operating the respective portions of the bridge for profit, and of course making working agreements for practical co-operation.

(d) The Canadian Government is prepared, subject to approval by Parliament, to co-operate with the State of New York for the purposes of liquidating the present Buffalo and Fort Erie Public Bridge Authority, including payment of the outstanding bonded indebtedness out of accumulated surpluses, and of vesting the U.S. portion of the bridge in the Niagara Frontier Port Authority as the designated agency of the State of New York.

19. The undersigned also recommend that, if arrangements can be made with the United States authorities within a reasonable time pursuant to the principles laid down in paragraph 18, they be authorized to submit a further report to Cabinet with a view to Cabinet approving the introduction of the necessary legislation during the 1956 Session of Parliament.¹⁹⁰

L.B. PEARSON