The Detroit/Wayne County Port Authority is considering the purchase of docks, like the one pictured here, to help create a revenue stream apart from what it now gets in subsidies from state and local government.
Privatization in its broadest sense is the transfer of assets or services from the
politicized and tax-supported sector of the economy to the entrepreneurial and competitive
markets of the private sector. There are many types: asset sales, outsourcing, vouchers,
and the elimination of government subsidies to a particular business or agency. The key to
each is less government bureaucracy and more private-sector initiative. Privatization is
an idea that should be examined with respect to the Detroit/Wayne County Port Authority.
Established in 1978, the D/WCPA is a nonprofit, government-supported operation that
promotes and plans shipping transportation involving Detroit and the surrounding area. The
Authority does not own, nor does it operate, commercial terminals. After twenty years and
many waves of taxpayer subsidies, the D/WCPA may be charting a new course toward dangerous
waters. But privatization could offer the Authorityand taxpayersa life
Of the 41 commercial deep-water ports in Michigan, several are owned by utility
companies, two are owned by local governments, and one, the port of Ontonogan, is owned by
the federal government and leased by the county. The D/WCPA is the only port that receives
a direct transfer of funds from the state of Michigan.
According to the D/WCPA proposed budget for fiscal year 1997-1998, subsidies from the
state treasury account for $301,900 of the Authoritys operating revenuemore
than is contributed by either the city of Detroit ($300,000) or Wayne County ($200,950),
which benefit most from the Authoritys existence. Other projected revenue totals
$256,546 and is received from the Greater Detroit Foreign Trade Zone, rent from tenants in
the office building owned by the authority, and a sum derived from "reserves." A
whopping 58% of the D/WCPAs $1,059,386 budget is gobbled up by the combined salary
and benefits of the Authoritys seven employees.
The nonprofit D/WCPA is looking to create an independent "revenue stream"
through control of several docks that it would lease to the private sector. It would
obtain the land needed for these new docks by using existing government property. In a
November, 1996 Detroit News article Rod Scott, vice president of Nicholson Terminal
& Dock responded to such a notion by saying, "What are they trying to
accomplish?" There is no shortage of facilities, there is no service that is not
being performed." In an April, 1998 interview with Michigan Privatization
Report, Mr. Scott added, "As for marketing, Nicholson Terminal & Dock, like
other terminal owners, does its own marketing. I personally spend 150 days a year in
Europe and Asia marketing our services and establishing relationships. The Authority
simply does not have the skill to properly market our services."
Some have the D/WCPAs sights set higher than on just the purchase of a few docks.
Former state representative and current head of the D/WCPA John Jamian recently suggested
that the Authority should do more than "be in the terminal business solely."
Said Jamian, "In Cleveland, the port authority helped fund the Rock and Roll Hall of
Fame and the new football stadium. We want to explore the same opportunities along the
A whopping 58% of the D/WCPAs $1,059,386 budget is gobbled up by the
combined salary and benefits of the Authoritys seven employees.
Additionally, officials have expressed a desire to have the D/WCPA get involved in
intermodal transportationwhere freight is interchanged between waterborne, rail, and
truck modes. But some observers argue that this is largely unnecessary in the city of
Detroit. The majority of freight that gets unloaded in Detroit by ship is "bulk"
freightsand, gravel, and cement-type products. It is the rare container (which is
how most nonbulk ship and train freight travels) that makes it to Detroit largely because
most container ships are too big to travel through the St. Lawrence Seaway. (Containers
are large four-sided crates that hold products from boxed detergent to electronic goods
and automobile parts.)
Jamian believes, however, that aggressively pursuing the state-based freight business
would lead to an increase in container traffic that would make the intermodal terminal
more attractive to businesswhether in the form of exports or imports. Much of the
container traffic entering and exiting Michigan now does so by flat bed truck and is
transferred to trains in Ohio, Illinois, or Canada. Jamian believes that having the
containers leave Michigan by ship or train may be beneficial to Michigan commerce.
The question is, at what cost? Michigan business now transports most of its goods
without the involvement of the D/WCPA. Even if Ohio, Illinois, or Canada are using their
tax dollars to subsidize the transportation of Michigan goods to distant locations, but
why should Michigan citizens pay taxes to distort the shipping decisions of private firms?
The market is in the best position to determine when and where an intermodal terminal is
needed. Railroads should continue to pay for and operate their own facilities.
The D/WCPA appears to want a role similar to (or in concert with) the states
Michigan Jobs Commission, which has been charged with "retaining" Michigan
business that may leave for other states, or recruiting businesses that would move here
from other states. The Mackinac Center has also been critical of the Michigan Jobs
Commission for engaging in activities that the private sector should fund itself if the
projects are genuinely necessary and viable.
The D/WCPA may have its mission expanded beyond control of its own docks. The Michigan
Legislature and state Department of Transportation are looking at creating a
train-specific intermodal terminal in Detroit, an intermodal terminal that one state
consultant suggested could be managed by the D/WCPA.
The non-profit D/WCPA is looking to create and independent revenue
stream through control of several docks that it would lease to the private sector.
If the state proceeds with developing a centralized intermodal terminal they will be
looking to acquire Conrail property in Detroit that covers 220 acres and runs 2.5 miles in
length. Preliminary financial work suggests that the cost of completing the project would
run as high as $150 million. The money would probably be raised by some government entity
by selling bonds.
The logic behind Detroit having a centralized intermodal terminal, where
trading freight cars can be conducted with greater ease, is not clear. There is a benefit
to centralized intermodal terminals if there is considerable "interline"
freight, where containers are switched from railroad to railroad. This occurs frequently
in Chicago which acts as a large hub for train freight. In Detroit that is not the case.
There just arent many freight changes in Detroit because the city is usually a point
of origin or destination.
Interestingly, without encouragement from the Authority, Representative Kwame
Kilpatrick (Detroit) has introduced legislation that would increase the size and scope of
the Authoritys budget and powers. The bill reads, in part, "The state shall
provide 50% of the operating budget of the authority, to be included in the state
transportation department budget which shall be subject to legislative approval." The
bill also allows provides the D/WCPA with condemnation and taxing powers, which means that
freight may be subject to a tax for the privilege of passing through Motown.
Any perceived benefit of expanding the D/WCPA (the ability to issue tax-free debt, for
instance) does not justify diverting additional money raised from taxpayers across the
state. It can be expected that if such an expansion were economically viable, private
investors would step forward to fund it. In fact, after talking with John Jamian, the
Authoritys director, this author believes that Jamian should start a for-profit port
marketing business. His enthusiasm, connections, entrepreneurial skill and salesmanship
would no-doubt make for a profitable enterprise.
Michigan has a history of failed government economic development programs. According to
Burton Folsom, Jr., senior fellow in economic education at the Mackinac Center,
"Michigan and other states have tried to promote internal improvement through subsidy
schemes, they have failed miserably time and again."
Editors Note: For more on economic development, visit the Mackinac Center for
Public Policy Web site at www.mackinac.org.
Most seaport property across the U.S. is owned by state and local governments, with
port authorities operating as government manager. A 1990 report conducted by the American
Association of Port Authorities showed that 30% of the 66 authorities surveyed were
operating at a loss, while those that did make a profit were all too often subject to cash
flow raids from the government body that created them.
Reason Foundation policy analysts David Haarmeyer and Peter Yorke suggest in their 1993
study Port Privatization: An International Perspective that American ports would
benefit from the same competitive model being adopted around the globe. "Overseas, 36
governments are considering or are in the process of privatizingthrough concessions
or asset salessome or all of their major shipping ports." Where privatization
has been allowed to work, productivity gains at the commercially-owned ports are in the
50% to 60% range. Britain, for example, sold off 19 of its ports to private owners in
1982. Since then, each port has received needed capital upgrades and now handles more
tonnage than ever, does so profitably, and pays taxes rather than consuming them through
As the world moves away from government ownership and management of water shipping
ports, some politicians in Detroit and Lansing are seeking larger subsidies and a greater
role for the D/WCPA. Until evidence demonstrates the need for either, Michigan lawmakers
should end state subsidies to the nonprofit Detroit-area Authority and let it sink or swim
on its own merit. If there is a role for an institution of the D/WCPAs nature, the
private sector would surely fund it.