Toward the end of their 1995 “Common Sense Revolution” election-platform document, the Progressive Conservatives outlined their stance on selling government assets such as the LCBO and TVO to the private sector. “History has shown that the private sector can use such assets more efficiently and provide better service to the public,” the party stated. Then, in bold print, they declared that “we believe the value of such assets is greater when being used to pay down the massive provincial debt than sitting on the government books.”
Once in power, it took several years for Premier Mike Harris’s government to find the first major public asset to sell off. Then, in 1999, it sold Highway 407 for a then-record $3.1 billion in a deal that remains controversial a quarter-century later.
In November 1998, the Harris government passed Bill 70, whose title told you all you really needed to know: “An act to engage the private sector in improving transportation infrastructure, reducing traffic congestion, creating jobs, and stimulating economic activity through the sale of Highway 407.” It authorized the sale of the toll highway, which had opened the previous year. Although the Liberals had proposed that winning bids be submitted to the provincial auditor, any sale would not be subject to further review by the legislature. After considering timeframes ranging from 55 to 199 years, the government settled on a 99-year lease period.
Agenda segment, June 26, 2020: Mike Harris: The Common Sense Revolution at 25
Bidders were given four options ranging from paying solely for the existing portion of the highway (which then stretched from Oakville to Markham) to covering extensions stretching as far as Highway 35/115 in Clarington. The competing consortiums represented such interests as construction firms and major banks. One of the highway’s primary builders, Canadian Highways International Corporation, couldn’t raise sufficient financing, as its bid was hampered by management changes at one of its major backers, CIBC.
The winning group included Quebec-based engineering firm SNC-Lavalin, Quebec provincial pension fund Caisse de dépôt et placement du Québec, and Spanish construction giant Grupo Ferrovial. (Its win perplexed some observers, as Ontario had recently launched a trade war with its eastern neighbour and banned Quebec construction companies from bidding on government contracts.)
When the deal was announced on April 13, 1999, the winning consortium agreed to spend $900 million on extending the highway west to the QEW/403 interchange in Burlington and east to Brock Road in Pickering, bringing its total investment to $4 billion. If those extensions weren’t finished by end of 2001, the consortium would pay a daily fine of $150,000. The deal included recommendations that tolls be increased only 2 per cent plus inflation over the first 15 years of the lease and then at just the rate of inflation after that.
On June 1, 1999, Howard Hampton took his campaign tour to Highway 407, where he told reporters that Premier Mike Harris had to sell the newest Toronto highway in order to meet a promise to boost education and health care spending. ( CP PHOTO/Rene Johnston)
Government officials praised the deal. “We are told it is a tremendous example for other jurisdictions to follow,” declared Rob Sampson, the minister in charge of privatization projects. Transportation minister Tony Clement said that, with the provincial debt on the highway gone, the cost of financing 407 was “no longer a burden to taxpayers.” A Hamilton Spectator editorial expressed belief that the government had implemented enough safeguards to keep tolls reasonable and that the consortium might benefit from lowered tolls and attract more drivers: “Regardless of tolls, the congestion-free, fast-track experience offered by an extended 407 will represent an inviting alternative to ever-increasing traffic gridlock on the QEW and 401. Those motorists who feel the costs of tolls just aren't worth it, or who oppose tolls on principle, aren't being held hostage.” The benefits of the deal, it concluded, made it preferable to public ownership.
Sampson assured the public that tolls would not rise, because the new owners would need plenty of drivers to pay off the debt. At the time of the sale, around 210,000 drivers used 407 daily, bringing in $9 million in tolls. “The limit is what the market is prepared to pay,” Sampson said. “And that is a realistic limit.” He warned that “if people aren’t prepared to drive the highway because they feel the tolls aren’t fair, then these gentlemen aren’t going to honour their commitment to manage this highway.” He argued that, in the long run, the public would save money by not having to maintain and rebuild the highway as it aged.
Article from the November 19, 1998, edition of the Toronto Star.
Not everyone was convinced. When the NDP government had initiated Highway 407, the plan was to toll the road until it was paid off or 30 years had passed. Under the new deal, tolls weren’t going to vanish anytime soon, if ever. The opposition parties and the Canadian Automobile Association feared they would skyrocket if left entirely to market factors. The Liberals criticized the length of the lease, the use of the sale revenue for non-highway purposes, and the property-tax exemption given to the consortium. NDP leader Howard Hampton suggested the profits should be put into a new transit fund for the GTA and Hamilton to make up for the downloaded coast of GO and the TTC.
A Toronto Star editorial criticized the deal as bad for motorists, whom it feared would be squeezed by the new owners. “Why single out people for punishment just because they live in a particular area or travel on a particular road?” the paper observed. “Strip away all the ideology about private-sector superiority and what you’re left with is not all that different from the government selling someone the right to hold people to ransom.”
The deal closed on May 5, coinciding with the government’s pre-election budget and heightening suspicions that the sale had been made to shore up Tory support for the election. The party had already released its election platform, which promised further personal-income and property-tax cuts, increased health-care spending, and more private investment in fixing public infrastructure. Finance Minister Ernie Eves vowed that the $1.6 billion in profit from the sale of Highway 407 would go toward health care and preparing post-secondary institutions for the upcoming double cohort produced by the elimination of the OAC year in high schools.
On the campaign trail, Harris didn’t rule future deals to privatize the LCBO, TVO, or the former pieces of the recently broken-up Ontario Hydro if the private sector could run them more efficiently. “We’re finding that many of the things government owns aren’t needed anymore,” he said. The Tories would win a second straight majority.
Headline from the April 29, 1999, edition of the Toronto Star.
It didn’t take long for controversies to emerge. In February 2000, the Globe and Mail claimed that the winning bid had been accepted because it offered the most money upfront, thus supporting PC campaign promises of cutting taxes. The paper claimed that an offer made by a consortium led by the holding company of the Thomson family (who also owned the Globe and Mail) would have cost less and covered extensions to Highway 35/115, saving future governments money. Eves denied that he had ignored objections from other cabinet members over the final decision and that the costs associated with land acquisition made selling off the existing road and some extensions a better deal.
Notice in the July 5, 1999, edition of the Toronto Star.
Within a year of the sale, toll rates rose by as much as 50 per cent, depending on the time of day. By the end of 2001, there had been four price hikes and increasing complaints about poor customer service. The government continued to insist that taxpayers had gotten a good deal and that the highway’s users showed they were willing to pay the tolls whatever the cost. “I don’t think the government should be in toll highway business,” Eves told the Toronto Star in January 2002. “I do know that we got twice as much as the government had put into it at the time and we were able to take that money and apply it to good use.” Two months later, SNC-Lavalin sold part of its interest for four times what it had originally cost. When the Liberals succeeded the PCs in 2003, they pursued legal action to roll back the tolls but abandoned the fight in 2006. Overall, over the initial 15-year period of private ownership, tolls increased by more than 300 per cent.
Premier Mike Harris (front row, centre) and Lieutenant-Governor Hilary Weston (front row, second from right) pose for a group photo with newly sworn-in members of cabinet at Queen's Park on June 17, 1999. Standing (from left to right) are David Turnbull, Cam Jackson, Tony Clement, Janet Ecker, Jim Flaherty and Rob Sampson. Seated are (from left to right) Jim Wilson, Norm Sterling, and Ernie Eves. (CP PHOTO/Kevin Frayer)
Over time, analysts came to believe that, if the province had hung onto the highway for a few more years, it would have seen its full profit potential and garnered a higher price if sold. Despite much talk, subsequent Ontario governments have not sold off major public assets, although Hydro One was partially privatized in 2015. The high cost of using Highway 407 has made it a flashpoint for those who argue that its tolls should be lowered in order to allow more truck traffic, which would alleviate pressure from Highway 401, calling into question the need for the proposed Highway 413 north of Toronto. One can also contemplate the amount of money the highway, estimated to be worth $30 billion in 2019, might have added to the public purse.
Among those who feel the sale left a poor legacy is current premier Doug Ford, who has often observed that it was a mistake. During a 2022 speech in Pickering marking the removal of tolls from the government-owned Highways 412 and 418, he said, “I don’t believe in gouging the people.”
Sources: the April 10, 1999, April 14, 1999, May 27, 1999, February 21, 2000, February 23, 2000, and December 7, 2001, editions of the Globe and Mail; the April 16, 1999, and September 3, 2019, editions of the Hamilton Spectator; the April 14, 1999, April 15,1999, and April 24, 1999, editions of the National Post, and the April 14, 1999, April 29, 1999, May 5, 1999, January 10, 2002, and May 6, 2022, editions of the Toronto Star.
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