HANSARD

 

NOVA SCOTIA HOUSE OF ASSEMBLY

 

 

 

 

COMMITTEE ON

NATURAL RESOURCES AND

ECONOMIC DEVELOPMENT

                                                                                               

 

 

Wednesday, March 27, 2019

 

 

COMMITTEE ROOM

 

 

Nova Scotia to Maine Ferry

 

 

 

 

Printed and Published by Nova Scotia Hansard Reporting Services

 

 

 

NATURAL RESOURCES AND

ECONOMIC DEVELOPMENT COMMITTEE

 

Suzanne Lohnes-Croft (Chair)

Hugh MacKay (Vice-Chair)

Rafah DiCostanzo

Keith Irving

Brendan Maguire

Hon. Pat Dunn

Elizabeth Smith-McCrossin

Claudia Chender

Lisa Roberts

 

[Hon. Zach Churchill replaced Rafah DiCostanzo]

[Gordon Wilson replaced Keith Irving]

[Tim Houston replaced Elizabeth Smith-McCrossin]

[Tammy Martin replaced Claudia Chender]

 

In Attendance:

 

Darlene Henry

Legislative Committee Clerk

 

Gordon Hebb

Chief Legislative Counsel

 

 

WITNESSES

 

Transportation and Infrastructure Renewal

Royden Trainor - Senior Executive Director, Policy and Planning

Diane Saurette - Executive Director, Finance and Strategic Capital Planning

 

Bay Ferries Ltd.

Mark MacDonald - CEO

 

Tourism Nova Scotia

Michele Saran - CEO

Anna Moran - Director, Research and Policy

 

 

 

 

 

 

HALIFAX, WEDNESDAY, MARCH 27, 2019

 

STANDING COMMITTEE ON

NATURAL RESOURCES AND ECONOMIC DEVELOPMENT

 

9:00 A.M.

 

CHAIR

Suzanne Lohnes-Croft

 

VICE-CHAIR

Hugh MacKay

 

            THE CHAIR: Good morning. I call this meeting of the Standing Committee on Natural Resources and Economic Development to order. My name is Suzanne Lohnes- Croft, MLA for Lunenburg and your Chair. The committee will be receiving a presentation from representatives of Transportation and Infrastructure Renewal, Bay Ferries Limited, and Tourism Nova Scotia regarding the Nova Scotia to Maine ferry.

 

            I will ask that those in attendance please make sure you have your phones on silent or vibrate. There is no photography in here except for media.

 

            I’ll ask committee members to introduce themselves.

 

            [The committee members introduced themselves.]

 

            THE CHAIR: To my right is our Legislative Counsel, Gordon Hebb, and to my right is our clerk, Darlene Henry.

 

            The washrooms and coffee are in the anteroom to your left. Should there be an emergency, we ask that you exit through Granville Street and go directly to the Grand Parade, where everyone will gather.

 

            I would ask that members wait to be recognized for the microphones. Because it’s a very large group, we need to make sure you listen to that because Legislative TV needs to be able to pick up your microphone for sound bites.

 

            We will have opening remarks by Ms. Saran and then follow-up remarks from other witnesses who are here. I’ll call on you, Ms. Saran, for your opening remarks.

 

            MICHELE SARAN: Good morning, everyone. I am pleased to be here today to discuss the ferry service between Nova Scotia and Maine and its impact on tourism.

 

            Tourism Nova Scotia is the provincial Crown corporation responsible for marketing Nova Scotia as a tourism destination and leading the growth of Nova Scotia’s tourism industry. My team works closely with businesses, community organizations, and government partners to develop and deliver visitor experiences and marketing initiatives that will help Nova Scotia achieve the Ivany report goal of $4 billion in tourism revenues by 2024.

 

            We know that substantial and sustainable tourism growth can only be achieved by attracting more visitors to the province and as many dollars as they can spend. This is our focus at Tourism Nova Scotia. Tourism is an important economic driver for Nova Scotia. It generates employment in both rural and urban communities. It generates spending by Nova Scotians and non-residents, which supports businesses and the economy overall. Tourism can be a catalyst for business start-ups, immigration, and employee recruitment, which supports population growth and innovation. Tourism firmly delivers on the government’s priority of inclusive economic growth.

 

            My team will be announcing full 2018 tourism results in the coming days, but I’m pleased to share that 2018 was Nova Scotia’s second-best tourism year on record. This success is rooted in hard work, positive economic conditions, strong marketing campaigns, and an industry-wide movement to truly understand the wants and needs of travellers.

 

            I would like to acknowledge Bay Ferries along with Marine Atlantic, Northumberland Ferries, and all transportation providers that provide travellers with safe and reliable ways to get here. Access to the province and transportation alternatives are essential for tourism growth.

 

            In the Yarmouth and Acadian Shores region, the ferry has been a catalyst for community development and tourism, with breweries, coffee shops, stores, and new visitor experiences coming on the scene. Since the ferry was reintroduced in 2014, there has been exceptional growth in room nights sold in the Yarmouth and Acadian Shores region. In 2013, the year prior to the reinstatement of the ferry service, there were approximately 23,500 licensed room nights sold in the Yarmouth and Acadian Shores region during the June to September period. In 2018, approximately 36,100 room nights were sold, which is an increase of 54 per cent compared to 2013. The occupancy rate during this period increased from 41 per cent in 2013 to 71 per cent in 2018.

 

            With such strong demand for accommodations in the Yarmouth and Acadian Shores region, we are seeing more investment by operators. Rodd Hotels and Resorts is moving ahead with plans to reopen the Colony Harbour Inn, which closed when the ferry stopped running in 2011. We’re also seeing amazing new accommodations pop up, like La Boatique Floating B&B, which allows guests to rent accommodations on a boat in the Yarmouth harbour.

 

            Research conducted by Tourism Nova Scotia and Bay Ferries confirms that visitors who travel to and/or from Nova Scotia using the Yarmouth ferry are high-value visitors. They stay longer in the province and they spend more than the average visitor. We also know that these visitors don’t just stay in the Yarmouth and Acadian Shores region - they travel throughout the province. Yarmouth is once again a major entry point to Nova Scotia and there’s a fresh vibe and strong effort under way to maximize the opportunities offered by the ferry link.

 

            Dawn Nickerson Ramsey grew up in Yarmouth but has spent years travelling and working in the food and beverage industry. Last year she and her partner, Joshua, moved back to Yarmouth from the United States and opened Wine and Beer Tours of Nova Scotia. They now offer scheduled and custom tours to breweries, wineries, and distilleries throughout the province.

 

            Simon and Lucien LeBlanc from Tusket Island Tours saw an opportunity to expand their successful business to offer new boat tours out of Yarmouth harbour. Sip Café started in a small space inside the City Drug Store Pharmachoice, but to keep up with increased traffic, the café underwent major renovation and expansion into downtown Yarmouth. They also provide food and beverage services on board the CAT ferry with their Sip at Sea café.

 

            New businesses like Off the Rails Electric Bike Tours are starting up, and established businesses like Heritage Brewing Company are growing.

 

            Reliable and consistent access to Nova Scotia is important for continued tourism growth. Tourism Nova Scotia is committed to working with Bay Ferries and the Yarmouth and Acadian Shores Tourism Association to align marketing efforts and attract more first-time visitors to Nova Scotia. Thank you.

 

            THE CHAIR: Who would like to go next? No other opening remarks? Mr. MacDonald, nothing?

 

Okay, we will start with our round of questions from the PC caucus. Mr. Houston.

 

            TIM HOUSTON: Thank you for those opening comments. Obviously tourism is important to all of us in this province and we can do a lot in tourism. We have a ton of opportunities, we just have to be very smart and strategic with how we invest our tourism money.

 

            My first question is for Mr. MacDonald: What are the implications to Bay Ferries if this service does not run? If the service does not run, does Bay Ferries continue to receive its management fee?

 

            MARK MACDONALD: I’m not sure that I understand what you’re getting at, Mr. Houston.

 

            TIM HOUSTON: If you don’t run a ferry this season, does Bay Ferries still receive a management fee?

 

            MARK MACDONALD: We will run a ferry this season.

 

            TIM HOUSTON: Okay, the question is very specific: If there’s no ferry that runs, does Bay Ferries still collect a management fee?

 

            MARK MACDONALD: I’m not prepared to talk about hypotheticals.

 

            TIM HOUSTON: Okay. Under the terms of the contract . . .

 

            THE CHAIR: Mr. Houston, you had two questions, that was two questions.

 

            TIM HOUSTON: Did I get an answer yet?

 

            THE CHAIR: It’s two questions.

 

            TIM HOUSTON: Okay.

 

            THE CHAIR: Ms. Roberts.

 

            LISA ROBERTS: I think this might be directed to either Ms. Saurette or Mr. Trainor. I would be interested to know from the government side what efforts have been made to secure federal funding. Clearly there is substantial provincial funding going into this ferry service. What efforts have been made to secure federal funding?

 

            ROYDEN TRAINOR: The federal government withdrew its support of the Yarmouth-Nova Scotia ferry to the New England States in 1996 and they haven’t returned. There is a standing request, as I understand, from all three Parties that they invite them to come back in to participate. That question has not been satisfied, they have not returned to that sector of activity. Of course, they do continue to support the Pictou ferry and the Newfoundland ferry, but for this ferry service, they haven’t.

 

            The federal Conservative Government didn’t say yes, the current Liberal Government didn’t say yes, but all three Parties, as I understand it, have asked.

 

            LISA ROBERTS: Clearly this ferry has been a priority for this Liberal Government here in Nova Scotia. I’m just wondering if you can give us any more details, given that since 2015, we’ve had 11 Liberal MPs in the House of Commons, so you would think that the stars have never been better aligned to have the federal government reconsider that, given the amount of provincial expenditure that is going to this ferry. If there were any more details in terms of the communication, I would welcome that - other than just that there’s a standing request. As any politician can tell you, standing requests quickly get buried in your pile.

 

            ROYDEN TRAINOR: What I can tell you is that the federal government - the Chrétien Government - discontinued the funding support, the Harper Government maintained that position, and the Trudeau Government have not changed their position on that. Constitutional ferries they continue to support. The Pictou ferry, which I know is very vital, they continue to support. This one, they have not.

 

            THE CHAIR: We’ll move over to the Liberal caucus - Mr. Churchill.

 

            HON. ZACH CHURCHILL: Thank you for explaining to the committee the critical importance to the tourism sector - particularly to southwestern Nova Scotia - of the ferry service. The return on investment is oftentimes a hard part of the conversation to get out there. Most of the conversation publicly is centred around areas of conflict.

 

            I know the tourism industry is fully behind this service. We have representatives from the business community in southwestern Nova Scotia, community development, and tourism as well. The loss of the ferry service isn’t a hypothetical situation for people in my area. When that service was cut by the previous NDP Government, we lost half of our accommodations overnight: the Colony Inn, the Manor Inn, the Mid-Town Motel, the Voyageur Inn - the list goes on, some iconic facilities that had been established for 100- plus years.

 

            I know that the comments from the members of the Opposition - the undermining of market confidence, the undermining of public confidence, the vilification of the company that is offering this service - has had an impact on our marketing efforts. I’m wondering if you or Mr. MacDonald can speak to that impact that the sort of continuous undermining of the service plays.

 

            I know that in my community - and I will table this for the House - we’ve heard from our chamber of commerce that has said: “The continued attacks on the service are resulting in lost investment for our region. We applaud Issmat Al-Akhali,” who is a business developer who was looking at Yarmouth as an investment opportunity. He pulled out as a result of continuous comments that are made around the viability of the service from the Opposition Party.

 

I just want to share this with the group: “The continued attacks on the service are resulting in lost investment for our region . . . This only serves to raise more concern about what other investment has been lost as a result. We know that this service is an essential part of our region’s infrastructure and supports the tourism industry of the entire province. We implore the opposition parties to stop using this critical investment as a political game.”

 

            I wonder, Mr. MacDonald or Ms. Saran, can you speak to any economical, financial, or marketing impacts that these comments have had on the service and our efforts to bring more American high-value tourists to this province?

 

            MARK MACDONALD: I’ll start, minister. Our company, and I think most of the people that work for our company, have learned to ignore politicians and get on with our job. The problem is that our customers, partners, and to some degree, investors in the community like you’re talking about right now can’t ignore those comments.

 

            We know it’s the job of politicians to comment on public policy. That’s the nature of the system that we live in, and politicians wouldn’t be doing their job if they weren’t commenting on legitimate public policy issues, like those associated with the ferry service.

 

            The problem is, from our standpoint - and we’re obviously looking from a somewhat narrow standpoint as operator of the service - is when it gets to an excessive degree and, in some cases, to a nasty degree. We have seen that a lot over the years, and the problem is that it goes straight into our market. It goes to our customers on the U.S. side, and it goes to the people that we’re trying to do business with on the U.S. side, whether they be towns or cities or federal agencies like U.S. Customs, U.S. Coast Guard, and so on.

 

[9:15 a.m.]

 

            I expected someone would ask me this today, and I brought along a headline. It goes back to February 1, 2017. The headline article in the Portland Press Herald is: “Nova Scotia candidate threatens to kill Maine ferry deal.” That’s the message that’s getting sent in this newspaper and various newspapers. If you go into the actual article, which I won’t today, you’ll see comments from the then-Leader of the Opposition which are really inflammatory and really offensive.

 

            Our company has worked with and worked under all three political Parties in this province. We’re actually proud of the relationships that we’ve enjoyed with all of those political Parties at different times in our history. We’ve also worked with both Parties at the federal level - I say both because only two have been in government. We’re really proud of all that.

 

            I think that gives us a platform to say that everybody, for the good of the business, has to stay calm, please, and rational and measured in what you’re saying and what you’re doing. Every 10,000 passengers on this ferry service equates to about $2 million in revenue. An article like this goes into a newspaper in the U.S., and it’s not just articles - it’s Google Alerts; everyone has Google Alerts; everyone connected with the ferry service is following everything. When an article like this goes into a paper, it takes years to recover from. What that does is cost revenue to the ferry service.

 

            Let’s say you’re an operator of a motor coach company in New England - and we deal with many of them. We have one person whose job it is essentially to interact on a daily basis with that community. That person is going from operator to operator to operator to operator. That business is one that likes to work three or four years in advance. Then you’re reading the paper or getting the Google Alerts or whatever, and you see stuff like this. It’s destructive to the business not only in the broad sense, but it actually costs us dollars. If it costs the ferry service dollars, it ends up costing the taxpayers dollars.

 

            We’ve worked with all of you at different times - not individually, but your Parties. We respect that you have to do your job and say what it is that you have to say about the ferry service, but please be reasonable. Keep the tone reasonable, and bear in mind that despite all the politics, there’s someone out there trying to run a business. There a lot of employees in that business, and there are probably tens of thousands of people to whom that business is very important. Don’t be costing that business money by being inflammatory in comments.

 

            Obviously, it touched a nerve, minister, in your question with us. People often ask, what are the biggest challenges that you people face trying to run this business? I would say amongst the biggest challenges we face is the fact that there’s a lot of excessive and difficult political discussion.

 

            THE CHAIR: Can you table the paper you have there, the article, with the clerk?

 

            MARK MACDONALD: Yes, I can.

 

            THE CHAIR: Okay. Was there someone else to answer that? Ms. Saran.

 

            MICHELE SARAN: I would just echo Mark’s comments. We at Tourism Nova Scotia work with our tour operators probably 12 to 18 months in advance, trying to encourage them to package the ferry with itineraries that feature Nova Scotia as a whole. It becomes very difficult when they don’t have the knowledge that it’s going to be a consistent service when they sense there’s any ambiguity about the future of the ferry. That would be the only thing I would like to add.

 

            THE CHAIR: Mr. Houston.

 

            ZACH CHURCHILL: Is there a follow-up question? It’s an important conversation.

 

            THE CHAIR: Mr. Churchill.

 

            ZACH CHURCHILL: Thank you very much, I appreciate your clarity on that. So there is a direct link to the inflammatory, hyperbolic comments of the Opposition, which are intended to vilify service, undermine public confidence and market confidence and the cost to taxpayers for that service. There is a direct link, I believe I heard you say, and correlation between those events.

 

            MARK MACDONALD: Yes, so that’s your categorization of them. Like I say, minister, we try to work with everybody, but there’s no question in our mind that there’s a very direct link between what I would call excessive and over-the-top and unnecessary commentary and direct loss of revenue to the service - there’s no question.

 

            THE CHAIR: Mr. Houston.

 

            TIM HOUSTON: Thank you for your comments, Mr. MacDonald. I guess what we’re talking about here is really economic development for Nova Scotia. We’re talking about tourism opportunities for Nova Scotia and we’re talking about making sure that taxpayer dollars that are expensed or invested towards economic development or invested towards tourism, get the most bang for the buck. That’s all we’re talking about.

 

            What we’re looking at here is a situation where in one instance roughly $60 million has been invested in one undertaking and it has been invested in an undertaking where the taxpayers of this province can’t even find out how much somebody got paid for managing that $60 million. I think most Nova Scotians find that bizarre.

 

            Looking at the budget yesterday, what I noticed was roughly a budget for Tourism Nova Scotia of about $20 million and a budget for the ferry roughly $20 million. Half of the money invested in tourism in this province is in one initiative; 2.4 million people visited this province last year - 2.4 million; 50,000 came on one entity, through the ferry; $20 million, Tourism Nova Scotia attracted over 2 million people; $20 million in one initiative, 50,000 people.

 

            I think it’s in the interest of the taxpayers of this province to know that we’re getting the best bang for the buck. I think it’s in the interest of every tourism operator across this province to feel like the investment the government is making in tourism is getting the best possible return. That’s what we’re talking about. That’s why we’re asking the questions: How much taxpayer money is being spent and are we getting the best possible result?

 

            That’s the job of government, that’s the job of every one of us. Some people might not like that it’s their job, but it remains our job. Up until this year the ferry service had been travelling to Portland. Ultimately that route was an acknowledged failure and Portland’s discontinuance was announced - not going to Portland anymore, going to go somewhere else. So to continue to have a ferry and presumably for Bay Ferries to continue to receive the management fees, although remarkably it sounds like the contract may allow them to receive management fees if they don’t run a ferry - there wasn’t a direct answer to that, maybe for a reason - to continue to receive a management fee, there needed to be a port to go to.

 

            Mr. MacDonald, a private company, has an obligation to his shareholders. That obligation is to be profitable; that obligation is to receive a management fee from this route. Bay Ferries needed a port, possibly any port. That ferry had to run.

 

We know that the upgrades to the Bar Harbor facility have cost the province $8.5 million so far. According to the town manager in Bar Harbor, that amount was negotiated by Bay Ferries, not by the department. We know that Bay Ferries was motivated to have a ferry going. The question then becomes: Who is looking out for the taxpayers? Bay Ferries is looking out for a private company, motivated by the same reasons - when I was in business for 20 years, I had one motivation: make money.

 

            I would like to ask Mr. MacDonald: Was there a maximum amount that the department, the Liberals, or anyone representing the taxpayers, communicated to you that they will would be willing to pay for upgrades? Or was it just: get it done?

 

            MARK MACDONALD: There were about 14 points imbedded in Mr. Houston’s comments.

 

            THE CHAIR: He’s making up for his last round.

 

            MARK MACDONALD: I’ll try to deal with a few of them. First of all, I absolutely reject your categorization that Portland was anything but a success in the context of the circumstances in which this service is operating. Remember that our company operated this service for 13 years - 1997 to 2009 when it was terminated. We did nine of those 13 years with zero subsidy, during which time we invested $100 million of borrowed money into the service for assets.

 

            Then there were four years in which - in consultation with a government led by your Party - some government contribution was introduced on the service. Then there were four years with no service and some of the consequences as described by Minister Churchill and others.

 

Then there were two years of a service run by the Nova Star company. The Nova Star arrangement was one which was supposed to be a fixed government contribution - a fixed subsidy arrangement of $21 million over seven years, if I recall correctly - and all of that money was gone by June of the first year - not the seven years. That company went bankrupt and left unpaid creditors all over northeastern U.S.A. So that’s what we walked into. It was a project to try to take this over and try to rebuild confidence in the ferry service.

 

In 2007, as we went through ongoing conversations with the City of Portland, it was clear to us that we and the province couldn’t necessarily rely on Portland as being a long-term destination for this ferry. The ferry terminal in Portland sits on the best piece of real estate in town. If it was Sydney, Australia, it would be where the Opera House is. In the roughly 10 years since our company operated in Portland, there was massive development around this area and we actually saw plans from the City of Portland that showed us that the city had other plans for the ferry terminal area down the road.

 

If you take as an assumption that the province wants this ferry service - and if there’s anyone in the room who doesn’t take that as an assumption, please say so - but if you take as an assumption that the province wants this ferry service, then we had to explore other alternatives, and we did so.

 

[9:30 a.m.]

 

At that point, there was a very complicated history in Bar Harbor. For about three years leading up to 2007, the State of Maine was negotiating to purchase back the ferry terminal from Marine Atlantic, which had owned the ferry terminal or leased the ferry terminal for the previous 55 or so years. It has always been a Canadian operation, this ferry terminal.

 

            The state was taking back the ferry terminal and the town was interested in acquiring the ferry terminal. We spoke to the town in the Fall of 2007 and introduced the idea of a ferry returning to Bar Harbor. There then followed a lengthy period when the town itself was considering whether or not to acquire this ferry terminal from the state, who in early 2017 had acquired it from Marine Atlantic.

 

            All the way through this process, which I’ll call the early stages of the process in 2017, our company was interacting on a weekly - and in some cases daily and in some cases hourly - basis with the Department of Transportation and Infrastructure Renewal on the question of whether or not the ferry service should look to a potential move to Bar Harbor.

 

            Then we went through an extended process through the winter of 2017-18 of speaking to the town’s consultants, interacting with people in the town and trying to introduce the idea of the town reconsidering ferry service because we could see that Portland did not represent a good long-term possibility, for all the reasons which I mentioned. Portland is a great city and we loved working there and maybe will someday in the future, but we could see that it did not present long-term potential as a port, based on what the city was telling us.

 

            We went through the whole process with the Town of Bar Harbor, talking to the province and consulting with the province all the way along. Eventually in the summer of 2018, our company made a proposal to the town in order to keep open the possibility of the move to Bar Harbor, given the uncertainty in Portland. The town then embarked on a very intense period of public consultation and everything about the possible return of the ferry service. We spent a great deal of time through the summer/early Fall of 2018 embarking on public consultation sessions and so on in Bar Harbor, all the while talking continuously with the province.

 

            Then separate and apart from that, what we did as a company - and again, hand in hand with the province - we did 40 separate financial models of the likely public cost of running this ferry service in Bar Harbor and in Portland. Even though at that point in time we had doubts about the long-term availability of the terminal in Portland, we treated it as if it was still an option to us. In other words, we modelled both scenarios and what we modelled were different scenarios of fuel price assumptions and different scenarios of passenger volume assumptions for the two ports. We produced 40 separate financial models and undertook a very detailed analysis of what those models told us.

 

Those models told us, generally speaking, that based on assumptions which we, as the business operator, thought were reasonable, the long-term cost of operation in Bar Harbor, the long-term cost to the public - taking into consideration revenues and expenses and all pieces of the puzzle - was a better financial proposition than operating in Portland. In certain circumstances, it might have been better by $1 million a year or something more than that. In some circumstances of passenger volumes and oil price, it was better by $3 million to $4 million a year. If the question was, and I think this is what people in government were saying to us, how do we get to the lowest long-term cost for this ferry service - if that was the question, all the financial modelling we did suggested that the lowest long-term cost of the ferry service would be achieved by moving it to Bar Harbor.

 

            Remember, we’re going through this analysis assuming we still can go to Portland, even though in our own minds, we have some doubt that Portland exists as a long-term model. What has been in our mind from the day we got back into this business, and it was in our minds before we left this business in 2009, is, what’s the least-cost and best way of doing the business to whatever port? When we continued to ask that question through Fall 2018, as it became apparent that Bar Harbor might be a possibility, the answer that we got was the lowest long-term cost of the ferry service which would give the ferry service the greatest chance of being sustainable in the long term was to operate to the port of Bar Harbor. That’s what all the financial models and analyses showed.

 

            We also went through a process with the province of risk analysis, saying, all right, what are the risks and uncertainties of doing this? It’s a very significant project to move a ferry service like this. There are a lot of risks and a lot of uncertainties, as there were to reinstitute this ferry service in 2016 in the first place. We had those discussions with the province. Given that there was a financial benefit and a long-term financial benefit to be achieved by the move to Bar Harbor, we were, again in parallel with all this, going through the process of trying to determine, as best we could, what the Bar Harbor project would cost.

 

            There are a lot of components to that project. I think we’ve spoken publicly about some of them. There’s a marine-side component and a land-side component, some of which involve customs and border protection facilities, some of which involve the rebuilding of older buildings and structures. We were with several sets of consulting engineers; all the while being overseen by an independent consulting engineer engaged by the province going through the process of assessing what all that would cost.

 

            I don’t speak for the province. It’s not my job to defend the province. They’re here, they can speak for themselves. The equation that we assumed they were asking is, given the potential to bring the cost of this ferry service down in the long term, what is a reasonable investment for the Province of Nova Scotia to make? That’s the nature of the process that we went through.

 

            THE CHAIR: Would you like your supplementary question?

 

            TIM HOUSTON: Yes, please.

 

            THE CHAIR: I just want to say the preambles here are equalling the responses. I know there are lots of people who have questions and want to hear answers, so let’s try to keep them a little shorter so that we can get as many questions in as possible. I don’t want to cut people off, but I also know there’s lots of information to be shared.

 

            Mr. Houston on your supplementary.

 

            TIM HOUSTON: The question was simply: What was the maximum that the province indicated they were willing to pay?

 

            I understand that you ran 40 scenarios. Perhaps you could table those scenarios for the benefit of the committee, but in terms of that specific question - in those scenarios there certainly would have been a variable for the cost of upgrades. Presumably some of those scenarios had higher upgrade costs; some of those scenarios had lower upgrades costs; and there would have been a scenario, presumably, where that upgrade cost was so high that it put Bar Harbor out of the running. I would be very interested. Maybe Mr. MacDonald will table those scenarios as to what the analysis was, but the reality is when we cut through that, we’re probably not going to get an answer on what the maximum was. I don’t think there was a maximum.

 

            I’d like to ask - Bar Harbor got serious benefit from this. They got an upgrade for their terminals, they’re probably going to get a Customs setup there with a Customs agency, or maybe use it for another purpose too. Who knows? All at the expense of the taxpayers of Nova Scotia.

 

            We’ve heard from the town manager who confirmed that the town was never asked if they would contribute to the upgrades of their terminal. At any point did officials from Bar Harbor, who was speaking on behalf of the province certainly in this instance - maybe not willing to today, but in this instance was - at any point did officials from Bar Harbor, or representatives from the department, even consider asking Bar Harbor to share in the costs of the upgrades to their terminal?

 

            THE CHAIR: And that question is for?

 

            TIM HOUSTON: Mr. MacDonald.

 

            MARK MACDONALD: This is a facility, which has been paid for by Canadians since 1956. Again, there are four points in the preamble, which I feel some obligation to briefly respond to, but the financial modelling which we were doing, which Mr. Houston has now referred to, was for the process of analyzing the operation on a go-forward basis to see how much money, if any - emphasis on the “if any” - we as an operator could save by the move to Bar Harbor. There are no guarantees obviously in any of this, but the process we were going through was to identify savings so that government could then make an intelligent investment decision. That’s how we saw it. They can speak for themselves.

 

            Having been distracted by Mr. Houston’s preamble, I’ll ask him to repeat his core question, if there was one.

 

            TIM HOUSTON: At any point, did anyone ask Bar Harbor if they would contribute to the upgrades to their facility?

 

            MARK MACDONALD: I’ve described the process, which we went through with Bar Harbor, and there were many more steps to it than I’ve described. We were coming to Bar Harbor to raise the possibility of return of the ferry service at a time when no one in the town was talking about ferry service, and where the town had engaged consultants to look at a variety of possible uses for the facility in Bar Harbor, including for cruise shipping purposes, for marinas, and lots of other public waterfront uses.

 

            We had in that context very thorough discussions with town officials in Bar Harbor about what would be a set of financial terms which the town and the council of the town would consider in order to make the return of the ferry service a possibility - very thorough discussions. I don’t know if you would call it an ask or what you would call it, but we were working in an environment where no one was thinking about ferry service and we were raising the possibility of a ferry service.

 

[9:45 a.m.]

 

Any suggestion that there was no ask or discussion - and I heard Mr. Knight of the town speaking to the CBC the other day so I assume that’s probably what you’re talking about, unless you’ve talked to him yourself, but any suggestion that contribution by the town was not discussed or on the table is simply wrong. In fact, the lease agreement we do have with the town embeds in it a capital contribution which, when traffic hits a certain level, instead of lease payments going to the town, they come back to the ferry service as a contribution to the capital costs which we will incur. So I totally reject what you’re saying.

 

            THE CHAIR: Mr. Trainor, you had comments?

 

            ROYDEN TRAINOR: Madam Chair, just a few comments. It’s always dangerous to accept the premise of a question if it needs to be challenged. The first point - the suggestion that as public servants we didn’t exercise our responsibility to have oversight of this process, is categorically untrue. We did.

 

            We also implemented, as Mark mentioned, an additional oversight role of a third- party consultant who reports to us - not to Mark - the validated costs, processes, and work that needs to be done, and I stand by that. I understand the narrative and I understand why one would want to argue that narrative, but it’s just not so.

 

            Secondly, however, with respect to the ask question, I also heard the interview. I know Mr. Knight, I’ve met with him on occasion, have had conversations with him on occasion. In my own career, like yourself, Mr. Houston, I’ve spent 20 years of my life prior to this work, working in the private sector as a corporate commercial lawyer. I can tell you that in negotiating strategies, we thought long and hard about how that works, very carefully.

 

            The easiest way to understand negotiations on this particular case - since we have lay people in the room and others - is to use the negotiation of buying a car. Now you could go to the car dealer and say, I’ll take that $500 discount, or you know what, I’ll get the undercoating for free, the winter tire package, maybe you can throw in oil changes for the next four years for free - a value which is substantially more valuable than the $500 cheque that you might get at the end, which they actually bill back to you anyway. That was really the strategy of our negotiations.

 

            What did we get? We got a ferry terminal that wasn’t available to us otherwise, we got an agreement where the renovations, though expensive - the only renovations we were responsible for were the ones that we were using exclusively, just the portion of the ferry terminal that we would use ourselves; the portion of the ferry terminal that is not used by them is entirely the responsibility of Bar Harbor. As Mark mentioned, we have a return of investment back into the ferry terminal as certain numbers are met.

 

            We avoided the cost, Madam Chair, of having to buy the terminal ourselves, which was another $5 million cost. We have Bar Harbor addressing all the issues of traffic control, traffic managing, permitting control managements, they’re going to heat it, ensure it’s operated - all those costs which are materially very significant costs for the Province of Nova Scotia we avoided.

 

            I respect that you could argue, or maybe people argue, that you would have got a better deal or someone else would have got a better deal, but I need you to understand that we judiciously, rigorously assessed all of those strategic negotiating issues. We were in constant contact with Mark who, by the way - probably if we were to fill this room with every bureaucrat who is in the Province of Nova Scotia, cumulatively they would not have the experience of negotiating this type of agreement that Mark has.

 

            You may disagree with the agreement but on the facts, we did consider real, very significant value that Bar Harbor brought to the table, the ones I just described. We did have a considered negotiating strategy. Ultimately, as Mark said, one of the important value propositions was to build a long-term relationship, which was of great value to us, which we didn’t have in Portland. It was going to provide an economic business case scenario where the overall cost to this ferry would reduce to the taxpayer over time. It was considered. You might not agree with it, but to suggest it wasn’t considered, it wasn’t oversighted, or it wasn’t judiciously, rigorously worked on just wouldn’t be fair and wouldn’t be true.

 

            THE CHAIR: We’ll move along to the NDP. Ms. Martin.

 

            TAMMY MARTIN: Actually, I’m going to defer to my colleague.

 

            THE CHAIR: Okay. Ms. Roberts.

 

            LISA ROBERTS: Thanks very much for your detailed answers. I am interested in the province’s analysis of the economic impact of this investment in the tourism industry. I appreciate that there was a lot of economic analysis done by Bay Ferries, which was comparing Portland versus Bar Harbor. There’s also the provincial analysis of the impact of the investment. I would like you to speak to what economic impact analysis was done of putting in this money and what the inferred induced benefits of that have been and will be and compared to what other scenarios.

 

            ROYDEN TRAINOR: Michele’s group in the introductory remarks spoke about the demonstrable impact post the restoration of the ferry service. I want to make maybe three points on this, Lisa.

 

            The first one is referring back to my old days when I was a student advocate. Mr. Churchill may remember his days in that way as well. We used to have this chant that said, you think education is expensive, try ignorance. You think the ferry is expensive, try not having it. I have examined every report that has ever been written on this with great detail, the three major reports that were done. I studied the Ivany report, which talked profoundly about the need to make investments in Nova Scotia that link to community values, community assets, and community strengths, and produces a self-supportive integrated economic scenario - not so much the model of a $50 million cheque to someone to build windmills. The scenarios that Ivany speaks of are scenarios like this scenario here.

 

            I also think that even as bureaucrats or as public servants, we do love expert opinions of course, and the government has committed that once the ferry is re-established in Bar Harbor, there is real value in doing that kind of deep analysis in addition to the work that has already been expressed by Tourism Nova Scotia. There is value in that, but it’s also important from a community base level to trust our ears, eyes, and experience.

 

            I was actually out of the province at the time when the ferry was cancelled, but I have spent an awful lot of time in the area since. I talk to community leaders, economic development people, and talk about, you want an economic impact analysis? Live in southwest Nova Scotia in 2011. That will tell you what the economic impact analysis was. My view is I suspect that when the economic impact analysis would have been most valuable was before the decision was made to cancel the ferry service.

 

            I would say the government is committed to following that up. The proof of the pudding is in the eating. In this case, we have seen dramatic growth and restoration of economic development in southwest Nova Scotia.

 

            The other piece that is important, that I think is expressed so strongly in Ivany, is thinking of economic development as a series of community systems. If you look at the system of tourism integrated in Nova Scotia - and points of entry are part of that - the system linkage between Yarmouth and Digby, Yarmouth and Pictou, Yarmouth and Cape Breton create circles of tourism activity which are self-realizing and self-supporting. When you cut one of those off, you may try to develop a discreet box and say well look, that’s that isolated impact. But it’s not; it impacts the entire system.

 

            I believe there is a mountain of experience that we need to draw on. We need to trust communities when they tell us that in 2009 when the ferry was cancelled that it was devastating. As a professional public servant, I look forward to the economic impact, but I also trust what communities have told us, I also trust what our tourism sector is telling us, and I also trust that we are moving the system to a stable platform where the overall costs will decline. I also trust that if a time machine was available to us that the service probably never would have been cut in the first place, because the costs related to restoring something is like renovating a house: sometimes it is easier to build a new house than to restore one. Restoring the service has been more costly to that scenario than we had hoped, but hindsight is a beautiful thing. Is that helpful?

 

            LISA ROBERTS: I appreciate your comments. I guess from our perspective, without an economic impact analysis, how do we know, for example, the feasibility of improving the ferry service so it can accommodate commercial traffic? That’s one of the questions we hear about the ferry service of course versus the Digby service, or how do we know or how can you say whether there would be more positive economic spinoffs for Yarmouth if the ferry arrived or departed at different times?

 

            It seems there is work to be done, especially given the amount that the province is putting in, how are we ensuring that we are getting the maximum spinoff from that investment?

 

            ROYDEN TRAINOR: I would say that I am committed both in my private sector life and in my public sector life to believe that a continuous improvement is always the objective, that we always need to be self-critical and look at new opportunities, that we always look at bringing in the best information and the best data we can find. I know that the economic report, once the system is running again, will be useful.

 

            I also believe you need to dig deep into the community-based experience, you need to listen to the tourism sector. When Rodd tells us they’re making an investment on their own dime, on their own risk, entirely because of that, I think it behooves us to believe that and to trust it. But I say that doesn’t mean we’re perfect and it doesn’t mean that we can’t get better.

 

I think that for all the things the government spends money on - this is a service. One of the things that I have to be very critical of, with all due respect to Mr. MacDonald - it’s not Bay Ferries ferry service, it’s a Nova Scotia Government ferry service which we’ve contracted with Mr. MacDonald to provide for the people of Nova Scotia and which I understand all three Parties have said they think it’s a good thing that we should do. But having said that, anything that can make it better, we are open to that conversation and it’s important.

 

            What we hear from the community and members of the community here today, they tell us, thank God, Mr. Trainor, I’m glad you didn’t have to live in southwest Nova Scotia in 2011.

 

            THE CHAIR: Thank you. Moving over to the Liberal caucus, Mr. Wilson.

 

            GORDON WILSON: Thank you all for being here today, and a quick shout-out to those folks we also have in the gallery: Angélique LeBlanc from our Western REN and all those who are here to support this. I think if the Opposition Parties want to ask questions on impact, I would suggest they go talk to them after and you will hear stories.

 

[10:00 a.m.]

 

            I’m going to be very quick. You guys took up all my preamble time, so I don’t get very much here, but I will say a few things. I did get into the business of politics because of what was going on in my community in 2011. That’s when it started to click in my head. In 2012, I put my hand up. I was in the middle of this. I walked through this. I have four ferries that serve my community - more ferries than probably any other MLA. I have the Saint John ferry, two ferries that serve people in the Islands, and the Yarmouth ferry - all impacted by decisions that are made and go on there.

 

            I saw stories that were never told about the Gilbert’s Cove Lighthouse Society. When that ferry was cut, they lost 25 per cent of their income. That will never be reported. They were on an unsustainable path - an historic icon that wouldn’t be here today if that ferry didn’t get reinstated.

 

            The bus tours used to have a place to park in downtown Digby. Guess what? They painted over those parking spaces and they put in parking spaces for regular people to park because there were no more bus tours coming to Digby. Two years ago they re-painted the bus tour parking spaces in downtown Digby. Those are the impacts that we have.

 

            I would like to just quickly table - I won’t read them, but I have quotes here from the Warden of the Municipality of Clare, the president of the Chamber of Commerce in Clare, Karen Enright, the president of the Digby and Area Board of Trade, the chairperson of the Digby Area Tourism, and the Warden for the Municipality of Digby stating the impact this ferry service has in our region. I would like to pass those on to be tabled and passed on to everybody.

 

            My questions are going to be around management fees. I don’t know what the whole thing is. We have management fees in long-term care facilities. We have management fees in road builders. We have management fees in other ferry services in this province, but for some reason we’re asking questions about management fees of the Yarmouth ferry.

 

            I would like to understand what a management fee is. What is underneath in the structure? Where does that money go and what is it used for? I understand it is before the courts and I don’t want you to divulge anything that would be proprietary or anything like that, but I would like to understand, what generally for all those other management fees out there would you typically see in a management fee?

 

            MARK MACDONALD: Some quick history on how we ended up with a management fee. The ferry was terminated in 2009, as everyone knows, and the ensuing four years were challenging ones.

 

            In 2012-13, the Province of Nova Scotia had an RFP for ferry service, and that RFP stipulated that the operator receive certain fixed amounts, and that the operator otherwise undertake the ferry service at their own risk. They would get this amount of money, X-amount of dollars over - I think in this case the stipulation was over a seven-year period. Otherwise, it was at their risk.

 

            Our company looked at that at the time and said, no, that is not a realistic amount of money and so we’re just going to step aside for this round. Because what we weren’t prepared to do is try to get the business based on an artificially low commitment of some sort, and then say to government, now you have to give us more. In other words, if we were going to take the risk, we were going to take the risk and not come looking for money from government at some point in the future.

 

            I talked earlier about how 10,000 passengers equates to about $2 million in revenues. In our business, running the kind of asset that we are, we can very easily have a swing of several million dollars in the price of fuel over the course of the year. So there are huge variables that are at play. Our belief as a company was that if we were being asked to take on those risks and those variables, we actually were going to and not be coming back to government. That’s fine. We passed on that round.

 

            An agreement was entered into with Nova Star, and the seven years’ worth of money was used up by June of the first season, so after a month of operation, the seven years’ money had been used up. We weren’t part of this because we sat this out. That obviously led to a series of ongoing discussions between that company and the province.

 

            If you skip ahead to Fall 2015, when this government took the decision that it wanted to reopen the business to potential other operators, at that time, the government didn’t stipulate a set fixed subsidy arrangement but asked for operators to make their financial proposals to government. At that point, in the context of these swings, these $4 million or $6 million swings that one could take in a given year in this business, also bearing in mind, as we said earlier, that extraneous factors like excessive comment and negative comment from politicians can also affect this, we decided as a company that we had two alternatives.

 

            To bid on a fixed-cost basis and take the risk and build in cushions that would protect us from low passenger volume scenarios or high fuel price scenarios, in which case, then we would take that risk, but we would price it accordingly - that was one alternative. The other alternative was to say, we will pass through the costs and charge a fee on top of those costs, and we will vary that fee depending on a series of success factors or financial success in the service relative to expectations.

 

            That’s how the management fee came about. In other words, we did not want to say to government, look, we’re assuming the worst-case scenario fuel price, and we’re assuming low passenger volumes, and yes, we’ll take the risk, and if oil prices were lower, and passenger volumes were higher, we would make a significant amount of money. That wasn’t a sensible approach in the circumstances because it would cost government a lot more. But we are a private company and have to be paid something for our efforts, or else all this fun wouldn’t be worth it. That’s the story on the management fee and why we ended up with a management fee in the contract.

 

            THE CHAIR: Ms. Saurette.

 

            DIANE SAURETTE: I finally get to talk. I do want to talk a little bit more about the contract and going to a management fee model.

 

            What that means is, we’re paying actuals. When the fuel bill comes in, we pay the fuel bill, but we have a level of control. We did not have that under the Nova Star contract. I understand the Bay Ferries’ budget as much as I understand the Department of Transportation and Infrastructure Renewal’s budget.

 

            The way that we work on an annual basis is that we look at this contract, we look at the history, and we look at where the numbers are. The biggest risks are going to be the passenger count and, as Mark has said, the fuel. We have resources in the Department of Finance and Treasury Board where we can look at where we think numbers are going to be for fuel and things like that. We can build on an annual basis, a realistic budget so we can manage that budget, we’re not coming back. It gives us more control so we’re paying actual, we pay a fee to the operator to operate the service for us.

 

With the Nova Star, as Mark has mentioned, in the first year we went through $21 million and then provided them with another $7.5 million grant. So in the first year Nova Star went through $28.5 million.

 

            We had received the file going into its second year and there was another $13 million that went to that service and it went bankrupt for another $16 million. You were looking at a service that, in essence, was costing approximately $25 million to $30 million a year. It was going up based on the type of charter arrangement that we had with the type of boat at that time. We went from year 2 to year 3 with this contract, with a management fee, to be able to control the cost and we went down to $15 million.

 

            We are now going to Bar Harbor, which has always been in discussion in terms of long-term sustainability, having that connection, having that transportation link, we’re in a place where we have long-term stability for our tourism operators, we can start to put a schedule out five years in advance, we can start to increase the service, and we can get that subsidy under $10 million.

 

            When the service was discontinued in 2009, it was a very expensive decision. I’ve been with government for almost 12 years, I spent the first five years at Treasury Board, so I was at Treasury Board when the service was discontinued. I can tell you - without being specific because it’s Treasury Board - as Royden said, in 2011 and you looked at the four years that the service was not there, the impact that it had in Nova Scotia and on business. We’ve seen it at Treasury Board and it was like okay, we need to bring this service back.

 

            It’s expensive to re-establish this service but the work we have done to get us to the place today, I’m very proud of. As a civil servant and the work that I do, I’m very proud of the work we have done to get us to the place today because now we have a service, we have a port, we have long-term stability, and it’s really sailing.

 

            We understand there were decisions made under Nova Star, commitments to U.S. Customs, we’re dealing with that, we have to deal with that. If that service had not been discontinued in 2009, we would have been grandfathered, we wouldn’t be buying customs equipment, we wouldn’t be having to do a reimbursable services program for service. Those types of things are the impact of discontinuing the service.

 

            We are at a place today where going to Bar Harbor, $8.5 million is absolutely a lot of money but immediately going to Bar Harbor, it’s 40 per cent less distance and fuel is our largest cost of the service. So there’s a business case and a payback alone just by going to Bar Harbor. That doesn’t even talk about all of the benefits of going to Bar Harbor and having the long-term lease and having that commitment to our service and no blackout dates, all different types of things, absolutely. Sorry about the rant, but I had to talk.

 

            GORDON WILSON: I want to get back to the management fees quickly here on my follow-up because I think it’s important for us to understand what a management fee is, where that money goes, how it’s disbursed - I mean there’s a lot.

 

            The speculation is out there with the rhetoric around it that it’s a golden cheque that is being given to a company. I don’t want to know the amount or anything like that, but how are management fees disbursed within a general company? I’ve mentioned several and I know you’re not privy and we’re not privy to long-term care facilities or we’re not privy to other ferry operators or road builders’ associations that have management fees, but typically within an organization, Mr. MacDonald, can you tell me how that money would be disbursed?

 

            MARK MACDONALD: Companies have expenses. We have overheads, we have salaries, and management fee income represents revenue to our company, which in our case goes along with other revenues which we earn, which go to pay the expenses of the company, and hopefully at the end of the day there’s something left over for the shareholders. It’s not much more complicated than that.

 

[10:15 a.m.]

 

            GORDON WILSON: Thank you very much, it’s important to understand that.

 

            THE CHAIR: Okay, we’ll switch to the PC caucus, Mr. Houston.

 

            TIM HOUSTON: Thank you for the comments. I think sustainability is one word that Ms. Saurette used, and I think that’s what people are interested in. People want this service to work, they want it to be a success.

 

            I had a chance to table some of the comments from the tabling that Mr. Wilson did: It’s our hope that the ferry service will contribute greatly to ongoing regional economic development - yes, everyone hopes that; we look forward to the arrival of thousands of new visitors - yes; and then of course somebody says they would like to see local Nova Scotians working on the ferry because we’re spending a lot of money on the ferry - yes, we are.

 

            I think that’s what this is all about - making sure that we attract visitors to Nova Scotia. That’s what this is about - making sure that we attract the most possible visitors to this province with the money that’s being invested. That’s what this is about. We want more success stories.

 

            But you can only make things better when you accept the facts and analyze the facts. That’s why I think my colleagues were wondering about an economic impact assessment - how can we make it better, how can we make it work?

 

            We can ignore facts and stick to politics and rhetoric or we can put the facts on the table and manoeuvre them around and ask, how do we make things better?

 

            Mr. Trainor said Mr. MacDonald is just running a ferry on behalf of Nova Scotians. That’s what he said, just running a service, a Nova Scotia service, just run the ferry. But there’s a lot more going on here than that. I’d like to ask Ms. Saran, when the province hires somebody to do advertising on behalf of the province, when there’s an opportunity for a third party to do advertising on behalf of the province, typically there’s a massive RFP. Ad agencies from across Nova Scotia, in Toronto, across Canada, and everywhere else will respond. The department will analyze those RFPs and pick the vendor that they think is appropriate.

 

            I remember the last RFP here in the province caused quite a bit of a furor; it got people upset. In this case Bay Ferries, imbedded in the contract, has a couple million dollars to spend on advertising. It seems to extend past just operating a ferry.

 

            As Tourism Nova Scotia, I’m just wondering, knowing the process that Tourism Nova Scotia had to go through with a big RFP to determine an advertising agent, which I think was a $3 million contract at the time, when you heard that Bay Ferries had $2 million, just as the part of their running the ferry, I’m just trying to understand the disconnect between the amount that’s invested in this and how money is funnelled through.

 

            THE CHAIR: Is this for Ms. Saran?

 

            TIM HOUSTON: Yes, the question is for Ms. Saran. The question is: The province has allocated $2 million to Bay Ferries without an RFP, for advertising. Has Tourism Nova Scotia had a chance to do any kind of a return, an analysis of return on investment on that, like they would be with their other contract, that was for $3 million, I believe? What analysis has Tourism Nova Scotia done on the advertising money that has flown through Bay Ferries that wasn’t tendered?

 

            MICHELE SARAN: It wouldn’t be the role of Tourism Nova Scotia to analyze the advertising efforts of Bay Ferries. We’re not privy to their contract nor do we influence their media buys or their advertising plans. I would have to defer that to Bay Ferries or TIR.

 

            TIM HOUSTON: No, that’s okay - the question was . . .

 

            THE CHAIR: Mr. Trainor.

 

            ROYDEN TRAINOR: As I said, the proof of the pudding is in the eating: 20 per cent growth a year in ridership. That’s like Starbucks’ returns on investments. I’m not sure that we could find an example where that type of a return of investment has worked as effectively.

 

            The other thing - and I appreciate Tourism Nova Scotia - there are options available to government that get examined. I would find it surprising that the Progressive Conservative Party would recommend this, but we could create a nice, big Crown corporation called the Nova Scotia to Maine Corporation and run it like a Crown corporation and have Diane and I run the boat back and forth, or you could use a best-in-class, nationally and internationally recognized private-sector provider - by the way, who lives in Nova Scotia, which is kind of a great thing to do, so they can come to committee meetings and things like that.

 

            That’s part of the piece. There are choices about building a massive government apparatus to do it, or being nimble and effective in partnering with the private sector, but I would say that if you want to exploit the expertise of experts like Bay Ferries, either you do that, or you grow a massive government organization to do it. I have to say, I was in advertising at one point in my life, and I’ve never seen a return on investment with 20 per cent growth in any of the work that I’ve done previously in my life.

 

            TIM HOUSTON: I took it from the reaction that Tourism Nova Scotia wasn’t aware that there were millions of dollars in advertising.

 

            MICHELE SARAN: I just didn’t understand the question.

 

            TIM HOUSTON: Okay. With all due respect to Mr. Trainor’s comments, I don’t think he was meaning to imply that Tourism Nova Scotia doesn’t know how to attract people to the province. They have a $20 million budget and we have two million visitors. This operation has a $20 million budget and has 50,000 visitors. I’m just trying to make sure that the money that’s invested in tourism in this province is getting a return on investments so that we have more success stories.

 

If Tourism Nova Scotia goes through a massive Nova Scotia provincial tendering process to hire an agency and that massive RFP process is totally not responsible, doesn’t apply to some other - I think that’s a question Nova Scotians would ask: What’s really happening? In your own words, Mr. Trainor, Mr. MacDonald is just running a ferry service, just moving people around.

 

I’d like to finish up with the question of sustainability. I know sometimes it’s easier to point the finger at somebody else, and say maybe it’s because somebody else said something, but oftentimes it doesn’t hurt to look in the mirror and assess where the service is and how it’s doing.

 

Ms. Saurette mentioned that we know five years in advance what’s happening. Well, in actual fact, there’s only a boat for the service for one more year. There’s a lot of uncertainty as to what boat that might be. I’d like to ask, given the fact that there’s no lease for a boat past 2019, I assume we’ll need a new boat. We all know that Bay Ferries, as they should be, are motivated to keep the service running. As a private company, that has to be their motivation.

 

I’d like to ask Mr. Trainor: Is there anything in the contract that would stop Bay Ferries from finding a boat that costs $10 million a year, $20 million, or more, and locking that boat up and using it for the remaining six years of the contract? Is there anything in the contract that says, this is the maximum you can spend on a lease for a boat?

 

I’ve been through the contract numerous times - the couple of pages that weren’t redacted - and I haven’t noticed anything that would actually protect the taxpayers. Bay Ferries is motivated to get a boat. Is there anything in the contract that, to your knowledge, would say that they couldn’t present a boat of $20 million a year to you?

 

ROYDEN TRAINOR: First of all, it’s worth mentioning that of course the contract was publicly disclosed proactively. It wouldn’t be fair to say, “the couple pages that weren’t redacted.” There were very few lines redacted, and it related exclusively to the management fees, so let’s be clear about that.

 

I can tell you that there is no scenario - zero scenario - where Bay Ferries would contract or be able to contract with the consent of the government for any material new cost for a new ferry without the government’s approval. Zero.

 

THE CHAIR: We will move on to the NDP caucus. Ms. Roberts, thank you for waiting so patiently.

 

LISA ROBERTS: The province and Bay Ferries have argued that disclosing Bay Ferries’ profit margin would make it easier for other companies to underbid Bay Ferries in the future. Can the department explain why it is not in the public interest to encourage downward pressure on future contract bids?

 

MARK MACDONALD: We operate in a competitive environment. All the work we do ultimately on different ferry services, including Prince Edward Island or Saint John-Digby, but also other places in the world where our company has worked from time to time, involve us at one time or another participating in competitive processes. In those competitive processes, we will have to make bids, like a road builder does or like a nursing home provider does, in government processes of various sorts.

 

There was one such process two years ago around federal ferry services in which 30-some companies expressed a potential interest. In that circumstance, whether it be in Canada or elsewhere, the amount of fee or charge that our company might seek to bid is something that is very much a competitive matter to us. As a private operator of a business, we think we are entitled to confidentiality of that information because it is of a highly private and highly competitive nature. That’s why we insisted on confidentiality of our management fee.

 

The government may well have its own reasons why it thinks that’s right, wrong, or otherwise, but I just wanted to say from the standpoint of our company, that’s why it’s important.

 

DIANE SAURETTE: I think it’s important to also mention that we went through our provincial competitive procurement process when we put out the RFS. From a provincial procurement perspective, and you go through that process, it is to ensure that we get the best bang for the taxpayer. So, we went through that competitive process.

 

I think the challenge with - it’s important, because it’s taxpayer money, to be transparent, but we also have to weigh that against divulging private information, and then what that means for our future procurement process. If you want to do business in Nova Scotia, we made you go through this process and now you have to divulge your personal information. What impact could that have on future tendering for other bids?

 

We, as a province, have thousands upon thousands of contracts and work on an annual basis. There is an established provincial procurement process and we follow that process to get the best contract, the best operator for this service.

 

I want to also make another comment about the amount of funding that’s going into the Yarmouth ferry in terms of tourism. We do have other ferries in this province and they’re funded by the taxpayer. It’s federal taxpayer, but we’re the federal - the taxes come from us. We have Digby, we have Pictou, we have the ferry that goes to Newfoundland and Labrador - it’s significant taxpayer dollars.

 

[10:30 a.m.]

 

ROYDEN TRAINOR: And our own.

 

DIANE SAURETTE: Yes, and our own.

 

Last week, the federal government announced three new ferries for our province, as well as the federal budget would have had the subsidies related to those. We’re not debating that because it’s in the federal budget and this one is in our provincial budget, but there are a lot of connections to get us into our province. This is one entry point, but we have multiple: through Digby, through the highway system, into the airport. There are multiple connections that bring people to our province and they’re important to the province.

 

            I don’t think it’s fair to look at Yarmouth and not consider all of the other transportation links that we do have coming into the province that are subsidized through the taxpayer.

 

            ROYDEN TRAINOR: I wanted to - because it may be an issue. For transparency, I want to be absolutely clear that - I was going to say, “every penny,” but we don’t have pennies anymore - every nickel that the taxpayers of Nova Scotia pay to support this service is disclosed in the Public Accounts, in the budget, Auditor General reviewable. There is no secret about how much this is costing - it’s 100 per cent disclosable.

 

            From the public policy question - and I love when people actually get to public policy; that’s kind of my special place - the Province of Nova Scotia does not see any public policy advantage making it intolerable for the private sector to do business with us.

 

            LISA ROBERTS: This supplementary is coming from a bit of a personal place in that I love ferries. If other people seek out beaches, I seek out ferries. I’ve taken the ferry to the Magdalen Islands; I’ve taken the ferry to the islands in Mr. Wilson’s constituency; I’ve taken the ferry across the LaHave River. My post politics plan is to take the ferry from Iceland to the Faroe Islands to northern Scotland. I love ferries.

 

            HUGH MACKAY: I’ll take you to Tancook. (Laughter)

 

            LISA ROBERTS: I’ve already been there - twice.

 

Speaking as a Nova Scotian with a family, and a person who loves travelling with ferries and with bicycles on the back of the car, the ticket price for Nova Scotians, if they wanted to consider actually taking this ferry, it is really expensive. I can take the ferry - and I have taken the ferry from Souris to the Magdalen Islands, and I just looked it up quickly, a one-way adult ticket price is $54. That’s a five-and-a-half-hour ferry. The one-way ticket price on this ferry is $99.

 

            What can you say to that? Ideally, given that our taxpayer dollars are contributing to this, we might also be able to think about enjoying it ourselves.

 

            MARK MACDONALD: I think that’s a really good question because even though 88 per cent of the people who travel on the ferry are Americans and they’re kind of the target from the province’s business standpoint, it’s also really important to us that Nova Scotians get to experience it. That’s one of the reasons that we have a Nova Scotia resident discount that applies on the ferry that was intended to kind of equalize the currency difference.

 

            The question of pricing - the question that we asked is: What is the sweet spot or what is the spot where we’re going to achieve the highest possible revenue on the service or the best possible bottom line? If your ticket price is too low, then you’re not going to be generating revenues. We always say that if you drop the price by 25 per cent, you need a third more passengers to travel on the service to keep the revenue in the same place, if you do the simple math on that.

 

            We compare with things, and in Bar Harbor it costs $63 to take a whale-watch cruise. You go out on a small boat without your car and cruise around for a couple of hours and then come back into port. That costs $63. So, we think that $99 is not a bad fare to take you to another country.

 

            There are all sorts of comparisons like that that we make. I guess all I can say is we are trying to hit the sweet spot. I think it’s important that the committee know this, we do the most thorough, I think, surveying of customers of any business that I know of.

 

For example, last year we sent out 14,000 and some-odd customer surveys that require, on average, about 14 minutes to complete, to customers of the service from last year. We got an astoundingly high response rate. We ended up with something in excess of 4,000 - I think 4,500 - responses to that survey. Criticism of our price is not a message that comes through in this customer survey process, but we are sensitive to it notwithstanding that, Ms. Roberts.

 

I think your question is a really fair one, and we are always just trying to hit the spot that will maximize our revenues so the cost to the taxpayer is as low as it can be.

 

We also have, if you follow us closely, you will see that there are a lot of different kinds of promotions through the year that we run. We try to, at different times, run promotions to, in effect, allow people to take their family along for free, those kinds of things. We have a whole series of offers that we make over the course of the year to try to drive the volumes and try to bring down the cost.

 

THE CHAIR: Thank you, Mr. MacDonald.

 

To the Liberal caucus, Mr. Churchill.

 

ZACH CHURCHILL: Thank you, Madam Chair. I just first want to clarify on the record for the committee a misrepresentation by Mr. Houston on the budget of Tourism Nova Scotia.

 

Mr. Houston has either explicitly or implicitly stated that half of your budget, Ms. Saran, goes to subsidizing the operating costs of the ferry. That’s not true. The association there is that half of the money we’re spending on tourism is going to the ferry and that doesn’t yield the result we want. That assertion is false because what we are looking at is a fraction of a transportation budget that doesn’t impact your tourism budget.

 

We are looking at $13 million out of a transportation budget that is close to $1 billion dollars; a fraction of that budget that allows us to transport people. That budget is where our roads are represented, as well, and our other ferries in the province.

 

If you can just confirm for the committee that none of your dollars in tourism, as has been implied, go toward subsidizing the operation of the ferry.

 

MICHELLE SARAN: None of the dollars of Tourism Nova Scotia go toward subsidizing the ferry. We had a marketing partnership last year with Bay Ferries where we co-invest in search engine optimization, digital marketing, and that was a total of $100,000, of which we each contributed half.

 

ZACH CHURCHILL: Thank you for clarifying that. We have established already in the committee, and that comment is consistent with other embellished comments designed to undermine market confidence and public confidence in a ferry service. We have already established that that sort of rhetoric impacts our marketing efforts, impacts the cost of the service, and impacts the subsidy levels. I hope the irony of that is not lost on members of the Opposition, that their own words are actually impacting and increasing costs for this.

 

            What we haven’t talked about is the impact to our domestic economic market. I do want to table an article here where tourism operators express the difficulty in gaining access to capital to upgrade their facilities, to invest in their business, to grow their business, when these conversations happen. To quote, the “uncertainty affects the ability to secure capital.” In Yarmouth, we also saw not just the freezing of lending, which impacted job growth and infrastructure investment, but also a loss of direct investment. I believe those things need to be considered as well.

 

            There’s a lot of talk about not having economic indicators we can look at to substantiate the argument that there’s a return on this investment. That is also false, because there are indicators that we can look at that are very clear. One, the increase in room bookings and occupancy. Ms. Saran, you’ve indicated that in Yarmouth and Acadian Shores, an area where tourism was essentially devastated without this - we lost 500 jobs, half of our accommodation sector - we’ve actually seen substantial growth, I think you said by about 55 per cent, in occupancy. We’re seeing that sector finally rebuild itself.

 

            You can also look at the information that’s collected in the exit survey from Americans who are visiting here, where they indicated that, per party, they’re spending about $2,500. If you just do the math on it, 50,000 passengers only need to spend $200 each to actually break even on this investment from a spending perspective. We know that each party is actually spending exponentially more than that. Say you use a conservative number and say of that 50,000, each party is four - we know that’s a conservative estimation - we’re looking at close to $30 million that is actually being spent.

 

If you look at cost benefit, people are coming here and spending, using conservative estimations, $30 million. That’s another great economic indicator we can look at. That doesn’t include the direct jobs, in the hundreds, that are associated with this service. That doesn’t include the investment dollars that Mark Rodd and others have invested in their properties to upgrade. That doesn’t include the new service industries that have grown as a result of this.

 

            One more point I want to make. There is a myth that this service only benefits southwestern Nova Scotia. If you look at the data from the exit survey, we know that most people are travelling through Yarmouth and visiting other parts of the province: 74 per cent of people coming in go to the South Shore, 64 per cent go to the Bay of Fundy, 60 per cent come here to Halifax to spend money, 30 per cent make their way to Cape Breton, and close to 25 per cent go to Northumberland. So this is an entry point to the whole province. It’s not just benefiting that area.

 

My question to you is: When you look at all the economic indicators that we have access to on this ferry service, are you satisfied that there is a return on investment from an economic perspective and that this is, in fact, a critical investment to support what is a growing tourism industry in this province and has contributed to the three most successful years on record that we’ve had in tourism? Would you agree with those statements?

 

MICHELE SARAN: I would absolutely agree with those statements, minister. I think the numbers that we have supporting the impact of the ferry from a tourism perspective are very compelling. We have even further data that visitors who arrive by ferry don’t only stay longer and spend more, they do travel throughout the province, but they’re more predisposed to spend more time in other parts of the province and spread out more than the average visitor. Ferry visitors are very, very good for Nova Scotia as a whole.

 

I might turn this over to my Director of Research and Policy, Anna Moran, so she has a chance to talk. She has a lot of data around this file. Anna.

 

ANNA MORAN: Just to add to what Michele said, over the last several months, a group of us from Tourism Nova Scotia have been conducting outreach across the province. What my team has done is they’ve conducted some specialized pulls of data from the visitor exit survey, and every time we go into a region like Yarmouth, South Shore, Bay of Fundy, Annapolis Valley, the message consistently has been to the audiences there is that when we are able to get visitors to disburse themselves throughout the province, we get a longer stay in the province and we get a higher spend in the province.

 

[10:45 a.m.]

 

            What we’re noting specifically about visitors who come into Nova Scotia or leave Nova Scotia on the Yarmouth ferry, is that they’re even more predisposed than the average pleasure visitor to disburse themselves to those more rural parts of Nova Scotia. They are an exceptionally high-value visitor coming into the province.

 

            MARK MACDONALD: May I add a brief comment? On the subject of economic impact, I also want to mention that the model that our company has followed since 2016 is the only time in the 60 years or so of Yarmouth ferry service in which the actual ship operation and the operations base for the ship has been based in Nova Scotia. With that comes the fact that all the crew are living in Nova Scotia.

 

We have specialized, trained maintenance crews who board the ship every night when she lands to undertake maintenance through the night in anticipation of the ship sailing in the morning.

 

All the catering and supplying of the ship takes place in Yarmouth. Mat Maltais, the young entrepreneur who has done that, employs 105 people, 30 of whom are specifically tied to the ferry service.

 

We spend, as a company, we estimate north of $8 million in Nova Scotia just as part of the operation of the ferry service, so I want to mention that.

 

In the customer survey process that we go through, our visitors stay on average 8.4 days in the province, so this is just backing up what Anna and Michele have said. There are visitors who stay much longer and travel much more within the province.

 

We saw that two regions in Nova Scotia posted employment gains last year: Halifax had 10,300 jobs, and southern mainland had 5,700 jobs. We don’t think that’s entirely a coincidence. Thank you.

 

THE CHAIR: We’re at the point where we have very little time left. I would ask that we have very quick questions, no pre-ramble. A quick question; a quick answer. I will cut you off, and very short closing remarks. Who is doing the closing remarks? Mr. MacDonald, it will have to be a very brief one.

 

Mr. Houston, one minute for the question.

 

TIM HOUSTON: Thank you. I know sometimes facts are inconvenient, but facts do matter and the fact is that the budget for Tourism Nova Scotia is $22 million.

 

The investment in this ferry service this year, $15 million, $20 million, whatever you want to call it - I’ll call it $20 million - that’s a total of $42 million. Half of the tourist- related dollars in this province go to this service. That’s the fact.

 

Now the question is, who has the vision for how to get the most of it? Who just wants a ferry for political reasons, and who wants the most, who wants more success stories? That’s the question that’s before us.

 

I want more tourists coming to this province and when I see Tourism Nova Scotia not involved in the advertising for how to attract them . . .

 

THE CHAIR: Order. We will have the answer now, and it is directed at who?

 

TIM HOUSTON: Mr. MacDonald.

 

            THE CHAIR: Mr. MacDonald, two minutes.

 

            MARK MACDONALD: As hard as I may look, Madam Chair, I couldn’t find a question. We run a very large marketing budget as we have going back to the time when we ran this business as an entirely private company.

 

            The marketing budget for the Yarmouth ferry going back to the early 2000s was always in the order of $2 million per year or more. We employ a local agency named VERB Interactive which has kind of grown up with our company, who now does business in tourism marketing around the world. We’re proud to have worked with them and partnered with them as Nova Scotians, as they’ve grown their business, and together we’ve marketed the Yarmouth ferry service.

 

            THE CHAIR: Thank you. Ms. Roberts, one minute for your question.

 

            LISA ROBERTS: I’ll direct this, please, to Mr. Trainor. He said Mr. Houston would not suggest it, but I’m with the NDP and not afraid to suggest that we could look at the value that the public would get for our investment if the province owned and operated the service itself. I guess my question is: Has any study been done on that scenario?

 

            THE CHAIR: Mr. Trainor - two minutes, please.

 

            ROYDEN TRAINOR: I should be able to do it quicker than that. No, we haven’t done a drill-down study, but I can say that the idea of building a Crown corporation to do this is unlikely. You’re asking to build a 36-day-a-year infrastructure with public servants running it and where you don’t benefit from the experience of people like Mark MacDonald. So, no we haven’t. By every scenario that I can conceive of, including having to buy everything like owning the terminal and all the extra costs, the answer is no.

 

            THE CHAIR: Thank you. Mr. Wilson, one minute for your question.

 

            GORDON WILSON: Sure, I’ll be quick. My question’s for Ms. Saran. We’re talking about rural economic development here. That’s what we’re here about today. We’re talking about a government that has a plan for rural economic development and we have targets to meet, and we’re meeting them. The ferry is an integral part of meeting those targets, there’s no question about it. Anybody who wants to question the impact of this on the Province of Nova Scotia on the whole, I would invite them to come down and visit with Zach and I in southwest Nova Scotia and talk to those people.

 

            THE CHAIR: Your question, please.

 

            GORDON WILSON: My question is: The impact of the negative rhetoric on this ferry service, does it concern you on the impact on tourism in Nova Scotia?

 

            THE CHAIR: Ms. Saran, two minutes.

 

            MICHELE SARAN: Of course, it concerns me. We hear questions every day from our tour operators in the northeast U.S. asking us if it’s going to be a stable, consistent service. I have to be concerned about that.

 

            I think you can speak to any of our stakeholders sitting behind us in the gallery today about their concerns, and they can speak considerably more eloquently than I can because they’re on the ground and they’re dealing with it every single day. They’ve seen what the world is like without the ferry and they’ve seen how great things are now with it. I only see the trajectory going up if we have a stable service, and I firmly believe that that will happen in Bar Harbor.

 

            THE CHAIR: Thank you. That concludes our question time. Mr. MacDonald, you have closing remarks. Can you keep them brief?

 

            Mr. Trainor.

 

            ROYDEN TRAINOR: I have this sinking feeling, I heard repeatedly in a couple comments that Mr. Trainor said that Mark just runs a ferry service, and I have this sinking feeling that it’s going to end up in Question Period. So out of self-preservation, I want to be sure that I was making it clear that it is a Nova Scotia ferry service. That was the point that I was making.

 

The benefit of having an experienced operator, with the depth of experience operating other ferries in Nova Scotia and the benefit of having an international reputation and that expertise - having people who are actually experts in this area - is part of the service package that we get in running that ferry service.

 

            THE CHAIR: Thank you. Mr. MacDonald, your closing remarks, please.

 

            MARK MACDONALD: Thank you, Madam Chair. Just very briefly, we are happy to be here and always happy to talk about what we do even though it’s in circumstances where it sometimes becomes political and sometimes becomes difficult.

 

I lead a large team of people around this province who’ve given their lives to this business. We work with many partners, many communities, and many people on both sides of the Gulf of Maine, on both sides of the Bay of Fundy, and both sides of the Northumberland Strait who are trying to do a good job for the communities that we serve.

 

I want to echo, as Ms. Saurette alluded to earlier in the day, that we’re very proud of these efforts, in challenging circumstances at times, but we pledge to this province and to the taxpayers of this province to continue to work at this and build the best possible business that we can going forward to drive the Nova Scotia economy, which is how you pay for hospitals and how you pay for schools. We will continue to do that, and we ask for the opportunity to continue to do that. Thank you.

 

            THE CHAIR: Thank you, Mr. MacDonald, and thank you to all the stakeholders.

 

You may be excused. We have just a couple of items for committee business. We’ll just continue; we’re short on time.

 

There was a piece of correspondence that everybody received. Just making sure - are there any questions regarding that? No. Okay.

 

 

Our next meeting is to be announced, so stay tuned to your emails. We don’t know when the Legislature will rise, so keep in touch and you will get a new meeting date. Thank you.

 

I call this meeting adjourned.

 

[The committee adjourned at 10:56 a.m.]